New sales fell by half in the hottest markets following the release of the government’s mini Budget, according to Zoopla’s House Price Index, which tracked data from October on 35 per cent of Britain’s housing stock by volume in 20 cities.
Demand was down 44 per cent with sales 28 per cent lower than a year ago, indicating that the housing market had stalled in October after the release of the government’s mini budget in September under then-Prime Minister Liz Truss.
Regional differences
Asking-price reductions were greatest in southern England and prices were lowered on nearly one-third of homes for sale in the South East and East of England (outside of London) in hopes of finding buyers.
One brighter spot was Wales, which saw house price growth at 9.9 per cent – higher than the average for the UK overall.
And fewer sales alongside fresh supply was increasing inventory, although scarcity was expected to continue into 2023. (Housing supply was still almost 20 per cent lower than before the pandemic, Zoopla said.)
Zoopla said demand had dropped to levels typically seen around the Christmas holidays as new buyers wait to see where mortgage rates end up and how the economy affects jobs and paychecks.
Pressure to move driving sales
So who was buying? Zoopla said new sales were being agreed by people with mortgage offers and people with a more urgent need to move, such as renters fearing steep rent rises or older buyers with more savings and less need to go the mortgage route to close a deal.
Zoopla forecast that mortgage rates would start the New Year at around five per cent as demand and prices fall. The underlying cost of five-year fixed-rate mortgages has dropped in the past month, Zoopla said, leading it to expect rates closer to five per cent come January.
Sales volumes were reminiscent of the pre-pandemic period, down 28 per cent from a year ago. The downturn in sales volumes was even steeper in areas where higher borrowing costs ate into demand, including in the mid- to upper price bands in southern England (excluding London) and the East Midlands.
Smaller drops in sales volume were seen in some of the more affordable markets such as Scotland.
Zoopla: ‘Likelihood of double-digit house price falls low’
Richard Donnell, executive director at Zoopla, said “The housing market is adjusting to a reset in the level of mortgage rates but the likelihood of double-digit house price falls at a UK level remains low.”
While the outlook for house prices is weak, he said, “we see a shift to more needs-driven motivations to move in 2023 and beyond, which will support sales volumes. Ongoing pandemic impacts, increased labour market flexibility plus more retirement will continue to encourage moves.”
Cost of living pressures such as the rapid growth of rents will add to pressures and spur more people to become first-time buyers, he added.
Future declines in sales, Zoopla said, would be concentrated in the high-value markets that are most sensitive to higher borrowing costs.
‘Further incentives needed to drive growth’
Emma Cox, managing director of real estate at Shawbrook, noted that uncertainty about the housing market was “requiring homeowners and prospective buyers to remain vigilant of any changes to mortgage rates and house prices.”
She said: “While financial measures introduced in the mini Budget and the Autumn Statement have helped lenders to drive down mortgage rates, borrowing costs remain at an all-time high, contributing to the Office for Budget Responsibility’s anticipated nine per cent drop in house prices by 2024.
“The extension of stamp duty changes introduced in the mini Budget should continue to incentivise prospective buyers; however, further incentives will be required to support those facing increasing financial pressures.
“As a significant number of first-time buyers are making the decision to delay their purchases in this climate, it’s likely we’ll begin to see signs of the market slowing down, but this may turn around as mortgage rates and house prices become more favourable down the line, and stability returns to the market.”
