With rising mortgage rates, many would-be first-time buyers are no longer able to make it onto the property ladder. And these frustrated first-time buyers are now swelling the number of renters.
With mortgage rates for two- and five-year fixed-rate mortgages exceeding 6% and the cost-of-living crisis deepening, the dream of owning a home becomes no longer achievable for many frustrated first-time buyers.
As a result, these would-be homeowners have to continue to rent and thereby increase the competition amongst renters.
Advice by proptech company iPlace Global could make the situation worse as they suggest to frustrated first-time buyers to delay buying a house until 2024.
As they anticipate that house prices will fall next year, they think first-time buyers will be better off waiting until they can afford more.
Rents Have Risen Sharply
The already expensive rental property market has seen rents go up by 3.2% this quarter, with the average asking rent outside of London now standing at £1,162 per calendar month.
This sharp rise is down to a lack of supply coupled with increased demand. Compared to last year 20% more people are looking to rent, a number swelled by frustrated first-time buyers. At the same time, the number of properties available to rent is down by 9% compared to the previous year.
Like in the residential sales market, this toxic combination has pushed up prices to record levels.
However, the number of new rental properties coming on the market is rinsing in all regions apart from London, where supply levels are down by 24%. The South West of England has seen an increase in rental properties coming available by 19%.
In Yorkshire & The Humber 12% more rentals are on the market and in Wales 10% more rental properties are on offer for renters. But despite this increase in rental properties, demand continues to outstrip supply.
Whilst it’s positive news that most areas are seeing more properties coming to market, with London the notable exception, ultimately the gap between supply and demand is becoming wider across the board. We will need a significant addition of homes to come onto the market to even begin to balance the scales.
Tim Bannister, Director of Property Science at Rightmove
Downsizing To Cut Costs
Not only rising rents but also the worsening cost-of-living crisis squeezes the budgets of renters and homeowners alike.
Many are forced to downsize to cut down on their outgoings. Already, competition for studio flats has risen by 71% compared to last year. Which means competition between potential tenants is hotting up.
While during the pandemic people were looking for more space, now the budget is dictating what people are looking for and space comes at a premium.
In the property sales market, no direct signs have yet been seen that homeowners have started to downsize. However, data from TwentyCi suggests that this could happen as interest rates and living costs rise.
But for now the data agency says the market is still robust, even though signs of stress start to appear.
Their data shows that the number of new instructions, sales agreed and contracts exchanged have all risen in Q3 compared with the same quarter in 2019. However, the number of sales that have fallen through has risen by 18%.
This could be because of the increased number of transactions, but TwentyCi believes it is also a result of rising mortgage rates and the withdrawal of mortgage offers.
A further sign that homeowners are looking to downsize is the high number of people wanting to move. The date by TwentyCi shows that in October 400,937 people were wanting to move.
Given the pressures on household budgets, this high number seems to indicate that many of them need to move to a smaller home to balance the books.
House Prices Still Rising But At Slower Rate
According to TwentyCi all regions of the UK have seen house prices rise in Q3 of 2022 compared to Q3 in 2019. The data agency puts the current average asking price at £425,000, which is a 23% increase from 2019, when the average asking price was £344,000.
But the report suggests that rising inflation and interest rates combined with increased cost of living will soon slow down the house price growth.
Another sign that the market is slowing down is that the number of transactions is falling. HMRC’s latest figures show that they were the same in September as in August, but 37% lower than last year.
Nothing better reflects the health of the housing market than the number and pace of transactions rather than more volatile prices. Interestingly, the slightly historic nature of these latest figures reflects how activity was beginning to stall even before the traumatic events at the end of September.
Jeremy Leaf, former RICS Residential Chairman and north London estate agent
The question is, is this just the normal slump in the run-up to Christmas, or is the property marker really starting to slow down.
