Buyer Demand Fell By 33%

New research suggests buyer demand has fallen by 33% since the mini-budget was announced in September, despite increased supply in recent weeks and months.

According to new research by property portal Zoopla, there are clear signs that buyer demand has fallen since the announcement of the mini-budget in September. The portal has said that their analysis has shown that since then, demand has reduced by 33%.

Nevertheless, the property market is still on course to complete almost 1.3 million sales in 2022.

Number Of Sales Falling Through Increased

The property portal has also reported that the number of sales falling through has increased, which it explains with the rise in mortgage rates that makes buying a home less affordable.

At the same time, 7% of homes that are currently for sale reduced their price by more than 7%. While this is an increase compared to the previous months, it’s still below levels seen before the pandemic in 2018.

The number of sales agreed has also fallen by 15% in the last week.

This seems to indicate that there is a shift from a seller’s market to a buyer’s market. At least for those buyers who are still able to afford to buy a home.

With half of buyers paying either by cash or with a relative small mortgage, not everyone is affected equally by rising interest rates and these buyers might benefit from the decreased buyer demand.

House Prices Forecast To Fall Next Year

While a slowdown in buyer demand is expected in the run-up to Christmas, Zoopla has reported that this year demand has dropped a month earlier, which indicates that higher borrowing costs are responsible.

And with the Bank of England (BoE) expected to raise interest rates further in November, the cost of borrowing could go up even more. Currently, the average two-year and five-year fixed rates have passed 6%.

Experts expect the BoE to raise interest rates by 0.75% to 3%. Earlier commentators expected a 1% rise, but since the appointment of the new Chancellor, Jeremy Hunt, the markets have calmed down.

Zoopla thinks that the era of cheap mortgages is over though, with their prediction that mortgage rates of 4% or 5% will become the new norm.

As a result of waning demand and higher mortgage rates, the portal expects that property prices will fall by 5% next year.

The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4% with a modest decline in house prices of up to 5%. The labour market remains strong and the supply of homes for sale is below average creating a scarcity of homes for sale that will support pricing.

Richard Donnell, Executive Director at Zoopla

Annual house price growth has fallen again slightly to 8.1% from 8.2% last month.

The biggest UK lender, Lloyds Bank, is also predicting house prices to fall next year, but it forecast a decline of 7.9% or even 12.9%, depending on how high interest rates and mortgage rates will rise.

In 2024, Lloyds expects a 0.5% decrease in house prices. Then the lender anticipates growth again, predicting a 2.5% price increase in 2025 and a 2.3% growth in 2026.

The bank’s predicted annual growth rate for this year is 5%.

300,000 Housebuilding Target Back

Meanwhile, the newly appointed Levelling Up, Housing and Communities Secretary, Michael Gove, has re-confirmed the Government’s commitment to build 300,000 houses every year in the mid-2020s.

He did admit though, that it will be a difficult target to meet, especially given the current economic circumstances.

We need to be straight with people: the cost of materials has increased because of the problems with global supply chains and also a very tight labour market means that the capacity to build those homes at the rate we want is constrained.

Michael Gove, Levelling Up, Housing and Communities Secretary

While the property industry has always been sceptical of this target, if the Government manages to reach it, it will give housing stock levels a boost, not just for the sales market, but also the rental market.

And the rental market is in desperate need of more stock. Because as buyer demand in the sales market falls, demand in the rental market has risen.

This is partly due to many frustrated first-time buyers no longer being able to afford to buy a home and who, as a result, swell the rental market.