Housing market acclimatising to a higher interest rate environment

The UK property market is continuing to readjust to a climate of higher borrowing costs, with consumer confidence rising in September to its highest level this year.

Related topics:  Finance,  Property,  Housing Market
Property | Reporter
10th October 2023
Nicky Stevenson 123
"Buyers looking to move are highly motivated. Three-quarters of buyers in August were confident they’d purchase a property within the next three months"
- Nicky Stevenson - Fine & Country

Nicky Stevenson, Managing Director of Fine & Country, says that interest rates being unexpectedly held at 5.25% is a good sign for the housing market, and sentiment should slowly improve as buyers and sellers increasingly know where they stand.

Looking at property prices, Stevenson says that according to Nationwide, the average house price in September was £257,808, showing no monthly change compared to August. This is an improvement on the 0.4% decline that economists had previously anticipated for the same period, with house prices proving resilient in the face of high-interest rates. Regions less stretched on affordability have seen shallower falls.

Spotlighting London, the decline in prices slowed in the last three months to the end of September to 3.8% year-on-year, indicating the capital is holding up well in tough conditions.

Nicky adds: “The prime market remains particularly strong, with positive year-on-year growth of 2.4%. The average price of a property in the prime market is now £1,271,287, and all regions bar one had positive annual growth."

According to Stevenson, mortgage market activity, an indicator of future demand, dipped in August, with 45,000 approvals, 8% lower than the previous month.

She notes: “This is a 14% improvement on the start of the year, although it remains below the long-term average. The Bank of England reported that gross mortgage lending rose from £19.1 billion in July to £19.7 billion in August. With increasing competition between lenders, as we move through autumn, activity should pick up again."

Data from the GfK Consumer Confidence Tracker reveals that consumer confidence rose to –21 in September 2023 from –25 in August, the highest reading since January 2022, and defying expectations of a slowdown to –27. This is boosted by the prospect of lower mortgage rates, with Zoopla recording an uptick in buyer demand, up 12% since the August Bank Holiday weekend.

Stevenson says: “The average time taken to finalise a sale is close to 20 weeks, up from 16 weeks in 2021, and time is ticking for those wanting to move in by Christmas. HMRC data reveals that transaction numbers showed a small uptick on the previous month, with 87,000 taking place in August, albeit 16% lower than last year’s higher levels.

"Buyers looking to move are highly motivated. Three-quarters of buyers in August were confident they’d purchase a property within the next three months."

She notes that affordability for those relying on mortgages is still a challenge after sustained high-interest rates. Buyers now entering the market are particularly conscious of their budget and are careful not to overstretch themselves. There are around 80% more homes available for sale than in September 2021. This increased choice means that there may be headroom for buyers to negotiate with sellers, putting pressure on asking prices. According to Zoopla, the average discount is 4.2% of the asking price, the largest since March 2019.

Nicky says: “Affordability remains stretched but is slowly improving, with mortgage rates continuing to fall on the back of dipping swap rates. The average five-year fixed rate has dropped below 6%, after reaching 6.38% in August. Those with a low loan-to-value or no mortgage are in a particularly strong position.

She concludes: Inflation is steadily easing, forecast to end 2024 at 2.6%, improving the outlook for the Bank Rate, which is thought to be at or very close to its peak. Buyers increasingly know where they stand, and sentiment should improve as volatility reduces. According to the HM Treasury Consensus Forecast, prices are forecast to soften into 2024, then set to rebound by 9% between 2025 and 2027."

More like this
Latest from Financial Reporter
Latest from Protection Reporter
to our newsletter

Join a community of over 20,000 landlords and property specialists and keep up-to-date with industry news and upcoming events via our newsletter.