25 July 2023 – Cost-of-living crisis and rising borrowing costs continue to impact on the housing market, with the number of completions falling.
New data shows that rising borrowing costs are putting a dampener on the activity in the property market. While the first quarter of 2023 showed signs that the housing market might recover, figures for Q2 indicate that activity has slowed down.
Rising mortgage rates have not only seen mortgage payments for existing mortgage holders go up considerably, they have also made buying a new home much more expensive for first-time buyers.
As a result, the second quarter didn’t perform as well as hoped, according to new data by Landmark Information Group.
Sales And Completions Slowing Down
Landmark Information Group has released their Residential Property Trends report for Q2 2023, and the data shows that the market is cooling down.
The number of transactions and completions are falling as concerns about affordability grow among potential buyers.
Progressed demand has remained weak, likely due to ongoing high interest rates and subsequent restricted mortgage availability and affordability – and this has had an inevitable knock-on effect across the rest of the transaction milestones.
Simon Brown, CEO of Landmark Information Group
According to the report, the number of properties Sold Subject to Contract (SSTC) has stagnated, with levels in Q2 being on par with those in Q1.
Compared to pre-pandemic levels, the number of homes SSTC in the second quarter were 30% below the levels in Q2 in 2019.
Completions have slowed down, being down by 13% in the second three months of the year compared to the first three. Compared to Q2 in 2019, the number of completed transactions is down by 39%.
Another indicator of the health of the property market is the number of searches ordered. The levels of this activity have been similar in Q1 and Q2 of 2023. However, 32% fewer searches have been booked between April and June 2023 compared to the same period in 2019.
The only activity that has seen a slight rise is the number of listings, which were 1% higher in the second quarter of this year compared to 2019.
In June 2023, stock levels were 12% higher than in the same month in 2019, which is a healthy level. There was a spike in supply in June, which Landmark Information Group puts down to a combination of sales falling through, landlords selling their rental properties and higher mortgage costs forcing homeowners to sell.
At the same time, demand has weakened, mostly due to rising mortgage rates and concerns about an unstable economy. In April this year, demand was 35% lower than in April 2019. In June, demand was 23% lower.
Fall In House Prices Predicted To Be In Double Figures
Economists at S&P Global Ratings have warned that house prices are likely to fall by 12% from their peak by the end of 2024, as a result of the rise in mortgage rates.
This year, the economists think house prices will fall by 6.6%. In 2024, they expect a fall of 4.9%.
Thereafter, the experts forecast that the market will stagnate, with price growth of 1.4% expected in 2025 and 3% in 2026. The economists suggest that mortgage rates will stay at elevated levels for longer, making buying a house more expensive for several years.
The economists at S&P Global Ratings don’t expect interest rates to fall until after 2024. So they predict that there is still some mortgage pain to come for many mortgage holders, before mortgage rates will hit the peak.
Even when central banks ease again, mortgage holders and potential buyers will continue to face higher real costs of borrowing that will take a larger share out of their budget and moderate demand for the foreseeable future.
Boris Glass, Senior Economist at S&P Global Ratings
Financial company Moody’s agrees and predicts that house prices will fall by 10% by the end of next year, due to soaring mortgage rates.
This year, they forecast house prices to fall by 4%, with a further fall of 6% predicted in 2024.
While many mortgage holders haven’t been impacted by rate rises so far, with 90% of borrowers having a fixed-rate mortgage for two or five years, it is estimated that 1 million people will have to renew their mortgages in the second half of this year.
They will face a huge jump in interest rates, from 0.1% to 5%, which will have a huge impact on their monthly payments.
It is likely that the property market is entering a slow phase, with levels of transactions and completions falling further.
While many first-time buyers are still keen to get on the property ladder, if mortgage rates continue to rise, as some economists predict, affordability will worsen.
We will have to wait until spring next year to see if the market will pick up again, with this time of year being traditionally more subdued anyway.
