30 May 2023 – New data shows that the property market is still subdued, with 7.5% lower sales in the first quarter of this year compared to the first quarter in 2019.
In recent months, speculation was rife about how the property market will perform after the ill-fated mini-budget in September drove it into chaos. More pessimistic commentators predicted the collapse of the market.
Others, more positively, did expect the market to slow down and anticipated house prices to fall this year, but didn’t think the market would crash.
But new data from TwentyCi‘s latest Property & Homemover Report for Q1 2023 shows that the market is more robust than most have given it credit for.
And despite 7.5% lower sales agreed in the first three months of the year compared to pre-pandemic levels, the trend is pointing upwards.
Lower Sales Don’t Indicate Slowdown Of Market
The number of sales agreed indicates the level of demand. Which means lower sales should indicate that buyer demand is falling. However, the report also highlights that 70% of all properties on the market have been sold so far this year.
This means that most properties on the market sell, which indicates that demand is not waning. It also has to be taken into account that prices have risen by 24% since 2019.
So even though the number of sales agrees is still lower than pre-pandemic levels, demand amongst buyers appears to be high, despite formidable financial challenges.
Similar to the number of sales, the number of exchanges has also fallen, by 9.1% compared to the same period in 2019. Another figure has dropped, which could explain why lower sales and exchanges don’t necessarily mean that demand has dropped.
TwentyCi’s data shows that new instructions have fallen by 6.1% in the first quarter of this year. With fewer properties on the market, the number of sales and exchanges is likely to also be lower.
The quarterly figures also don’t tell the full story. According to the report, new instructions, sales agreed and exchanges have risen in March compared to the first two months. This indicates the market is picking up, ready for the busy spring season, when activity levels traditionally increase.
As the dust settles from recent shocks, the residential market is emerging in remarkably robust shape. Whilst doomsday scenarios can’t be ruled out, it seems there is room for that old phrase ‘cautious optimism’. As energy prices ease and interest rates and inflation look set to be near peaks or trending downwards, stable or upside scenarios have certainly started to look more credible.
Colin Bradshaw, CEO at TwentyCi
Suprisingly, the number of sales fallen through and price changes have only risen slightly, by 6.2% and 5% respectively. The number of withdrawals has even fallen by 9.6% compared to the first quarter in 2019.
This shows that buyers have a strong desire to buy, despite the difficult economic situation. It also shows that buyers as well as sellers have adapted to the changed property landscape and are willing to make compromises.
Rising Interest Rates Could Reverse Upward Trend
However, the latest official figures have shown that inflation has slowed less in April than expected. With core inflation now standing at 8.7%. As a result, the Bank of England (BoE) has raised interest rates to 4.5%.
The financial market has reacted to this by several lenders, including Halifax and Lloyds, raising their mortgage rates for new deals. Nationwide has announced the most significant rise with 0.45%.
According to Moneyfacts, the average rate for a fixed-rate mortgage for two years is now 5.35%. For five years, the average rate is 5.02%.
Experts say that this shows that the markets expect the BoE to raise interest rates even further, possibly up to 5.5%.
If inflation does stay high for longer and the Bank continues to raise the base rate, then it is likely that mortgage rates will also continue to rise.
The inflation number was a real surprise, it stayed high and sticky and that’s really worried investors. It will affect mortgage and borrowing rates over the next year or two.
Luke Hickmore, Investment Director of Fixed Income at Abrdn
This recent rise in mortgage rates will be a blow to many buyers, especially as rates had started to fall in recent months.
While the property market has shown incredible resilience throughout the past two to three years, the question is, is it robust enough to weather more headwinds.
For now, annual house price growth continues to grow, with 0.1% in April, according to Halifax’ latest House Price Index. This is a drop compared to March, when annual growth stood at 1.6%.
However, at the moment the property market appears stable. Depending on what happens with inflation and mortgage rates, house prices might not fall by much, if at all this year.
