The new Chancellor, Jeremy Hunt, has confirmed that the Stamp Duty Land Tax (SDLT) cut that was announced as part of the mini-budget by his predecessor will stay. But despite this measure going ahead, demand slows down.
On Monday morning, Mr Hunt addressed the public via a pre-recorded video, in which he laid out his economic plans. As many have predicted, he reversed most tax measures in the mini-budget.
But because the cut in SDLT has already been passed by Parliament, this tax cut will go ahead as planned. For the same reason the reversal of the National Insurance rise will also happen as announced by the former Chancellor Kwasi Kwarteng.
But despite this there are unmistakable signs that demand slows down, which will lead to a slowdown of the market.
Supply Goes Up But Demand Slows Down
According to Rightmove’s new House Price Index for October, stock levels have risen to 50 properties per agent this month, which is the highest number in 2022 so far.
At the same time, the property portal reports a 15% fall in demand, compared to the same time last year. Although levels of demand are still 20% above what they were before the pandemic, it appears that the economic pressures dampen the desire to move for many people.
While demand across the board has slowed down, first-time buyer demand has fallen by 21% compared to the first two weeks last year. While still 24% higher than in 2019, it shows that this group is hit the hardest by the economic pressures.
Although a slowdown at this time of the year is expected, it does coincide with rising mortgage rates as well as economic uncertainty.
After the announcement of the mini-budget on 23 September, mortgage rates have hiked and now stand at 6.46% for a two-year fixed mortgage and at 6.28% for a five-year fixed rate, according to Moneyfacts.
Because of the rising mortgage rates, any gain made from the stamp duty cut is eaten up by high borrowing costs. This means the stamp duty cut does nothing to help first-time buyers, according to Labour’s Shadow Culture secretary, Lucy Powell.
And it’s going to get worse, with the Bank of England (BoE) determined to bring inflation under control, which they do by rising interest rates. The current base rate of 2.25% will be reviewed again at the bank’s next meeting on 3 November.
It is widely anticipated that the BoE will further raise interest rates by as much as 0.75% to 3%.
[The Bank of England] will not hesitate to raise interest rates to meet the inflation target. And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.Andrew Bailey, Governor of the Bank of England
A further rise in interest rates will inevitably mean a rise in mortgage rates. This encourages many buyers to push through their purchase as quickly as possible so as not to lose their already agreed fixed-term mortgage rate.
A sign for this eagerness to complete is the low rate of sales falling through, with only 3.1%.
House Price Growth Is Slowing Down
While Rightmove reports a 0.9% rise in house prices compared to last month, the portal predicts a further slowdown in house price growth. The reason given for the continued increase in house prices, the average house price now stands at £371,158, is the remaining imbalance between housing stock and demand.
There are indications that prices won’t continue to rise, with 23% of properties currently on the market having reduced their price. This is a 2% increase from last month.
However, new sellers are still set on getting a good price for their home, and they are pricing their properties accordingly. And while more homes on the market reduced their price than last month, the number of reductions is still below the five-year average before the pandemic, which lay at 32%.
What’s going to happen to house prices is understandably on the minds of many home-movers right now, especially following the market uncertainty after the government’s mini-budget. There has been no immediate effect on prices, but the trend of a slight softening in the pace of growth continues. New sellers coming to market in the month have been pricing strongly, and the number of homes that were already on the market seeing a reduction in price is still well below the long-term average.Tim Bannister, Director of Property Science at Rightmove
As a result of the slight price rise this month, the annual price growth is now at 7.8%, down from 8.7% last month.
While overall prices have risen by 0.9%, some regions in the UK have seen prices fall in October compared to September.
The North West of England saw a monthly reduction of 0.6%, the biggest drop of all regions. The North East of England reported a decrease of 0.5%, followed by the East Midlands with a 0.4% fall. In the East of England prices dropped slightly by 0.1%.
In all other regions there was a small increase in monthly house price growth. The biggest in London with 1.9%.
So despite the stamp duty cut going ahead, demand slows down amidst rising mortgage costs and the continued cost-of-living crisis.