"Sellers who price competitively are much more likely to find a suitable buyer quickly before their home appears stale, and they can often then negotiate on price on any onward purchase"
The latest data released by Rightmove has revealed that buyer affordability constraints and more pricing realism from new sellers have brought forward the usual summer slowdown. According to the numbers, average new seller asking prices fell by £82 (-0.0%) this month to £372,812 - the first monthly drop in new asking prices this year, and the first at this time of year since 2017.
There have been some significant increases in fixed mortgage interest rates over the last few weeks following stubbornly high inflation figures, piling pressure onto already very stretched budgets. These increases in rates and monthly mortgage payments may mean that some have to pause their plans for now.
However, the latest data suggests that the immediate impact on activity has been limited with most movers determined to carry on if they can still afford it.
Tim Bannister from Rightmove comments: “Average new seller asking prices, the first and leading indicator of new trends in the market, have dropped slightly this month, signalling that the belated spring price bounce has quickly turned into an earlier than usual summer slowdown.
"We expect asking prices to edge down during the second half of the year which is the normal seasonal pattern, and while we sometimes re-forecast our expectations for annual price changes at this time, current trends suggest that our original forecast of a 2% annual drop in asking prices at the end of 2023 is still valid. Agents report that new sellers are sitting in two camps – those who still have over-optimistic price expectations following the buoyant pandemic market, and those who have adapted to the new conditions and are coming to market with a competitive price.
"Sellers who price competitively are much more likely to find a suitable buyer quickly before their home appears stale, and they can often then negotiate on price on any onward purchase.”
There appears to be no effect on demand, however, a modest impact on sales activity has been recorded as movers navigate the latest mortgage rate rises. The number of buyers enquiring to agents about properties for sale is still 6% higher than in the same two weeks in the more normal market of 2019, while the number of sales agreed during this period is 6% lower, a slight drop from agreed sales figures being 3% behind 2019’s levels in May. It remains to be seen whether the expected further increase in interest rates will impact these figures further.
Nevertheless, just as rates appeared to be settling, the significant changes in the mortgage market over the last four weeks are creating renewed disruption and uncertainty among movers trying to calculate how much they can afford to borrow and repay.
In the last four weeks, the average mortgage rate for a 5-year fixed 85% Loan-To-Value (LTV) mortgage has jumped from 4.56% to 5.20%. This means that a new buyer purchasing a property at the current average asking price would now expect to pay an extra £117 per month if repaying the mortgage over a 25-year term.
By comparison, the average rate for the same mortgage product changed from 4.50% to 4.52% over the previous four weeks, highlighting how quickly the mortgage market has become more uncertain.
This is leading more prospective buyers to check their current affordability, with daily visits to Rightmove’s Mortgage in Principle service up by 53% compared with before the unexpectedly high inflation figures.
Tim Bannister concludes: “We expected some more twists and turns this year and we’ve had several in the last month, including stubbornly high inflation figures, surprisingly large average wage increases, and their eventual impact on mortgage interest rates and availability. We expect that there may be more change to come depending on this week’s inflation figures and the Bank of England Base Rate decision.
"It is likely to feel very frenetic for those taking out a mortgage right now, as they try to quickly lock in the best rate that they can find. Although the impact of higher mortgage rates on activity levels has been limited so far, with prospective buyers who can still afford to move appearing determined to go ahead, it remains to be seen how movers will respond to the expected further rate rises.”