House Prices: Remaining Steady? or About to Fall?
There has been a real concern that the current economic climate of rising interest rates, rising inflation and economic uncertainty driven by higher energy bills and food costs will soon have a worrying knock-on effect on house prices, causing them to fall sharply as the housing market slows down. We look at the evidence of house price reduction and comment on the market from the experiences of our residential conveyancing team at Lawson-West Solicitors in Leicestershire.
Are House Prices Steady?
According to Nationwide (30 June), the number of mortgage applications has not declined yet despite interest rates rising to the highest level in 15 years. The building society said the sharp increase in borrowing costs was likely to cause a "significant drag" on activity in the housing market in coming months. UK house prices have defied expectations by growing slightly in June 2023 but annual prices fell at the fastest rate since 2009 as soaring mortgage costs took a toll on the market.
According to online Zoopla (30 May), house prices are looking steady and stable, according to them:
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UK house prices have fallen 1.3% over the last 6 months but the rate of price falls has now slowed
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Activity levels are recovering and more sellers are coming into the market as falling mortgage rates and a strong labour market boost buyer confidence
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No evidence of a build-up of unsold homes
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The number of homes listed for more than 90 days in most areas is in line with the 5-year average.
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No need for larger price falls to clear stock at this stage.
According to the Land Registry (who record all sales and purchases in the UK):
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As of March 2023. Property prices fell by 1.2% compared to the previous month and increased by 4.1% compared to the same month in the previous year.
According to the Halifax (April):
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UK house prices dipped in April, but the market is more stable.
Property prices have proved to be resilient over the last year, despite 12 consecutive interest rate rises. Bucking predictions last year of a 10%-20% slump, Halifax said average prices in April were 0.1% higher than the same month a year ago.
Volume of Transactions
According to HMRC Statistics, signs of the increasingly faltering housing market in the short term were highlighted by the latest HM Revenue and Customs figures, which showed home sales fell by 27% year on year in May 2023.
(31 May)
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‘Following an increase in March, residential transactions have resumed their downward trend - seasonally adjusted transactions are now at their lowest level since October 2021.’
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‘The provisional seasonally adjusted estimate of the number of UKresidential transactions in April 2023 is 82,120, 25% lower than April 2022 and 8% lower than March 2023’, however
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‘Transactions were particularly strong in March due to a larger number of working days relative to April and the final month for purchases to complete under the government’s Help To Buy Equity Loan Scheme.’
Mortgage Rate Increases
(June and July) The Bank of England raised UK interest rates to 5% in June and mortgage lenders have been withdrawing deals and hiking their rates in recent weeks amid predictions the base interest rate could peak at 6% this year.
On 4 July, Moneyfacts said:
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The average two-year fixed deal now stands at 6.47%
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The average five-year fixed deal now stands at 6.01%
The last time the average two-year fixed rate was so much higher than the average five-year rate was back in February 2008.
Meanwhile, the average standard variable rate (SVR) has continued to climb above 7% and the current average SVR is 7.37%.
Listen to Radio 4 Today Debate: "Is the Housing Market Broken?" 4 July 2023, (available after 8pm broadcast)
BBC News (25 May)
Report ‘Mortgage Rates Rise after Inflation Surprise’. Mortgage costs are rising after higher-than-expected inflation figures this week which raised forecasts of how much UK interest rates will go up.
The Guardian Newspaper (30 May)
Report 'The housing market experienced mortgage choice implications following the recent higher-than-expected inflation rates in May – that although the market is stable, the number of mortgage products being offered at reasonable levels of interest are falling'…lenders are being more cautious about lending at lower rates.
MoneyFacts (30 May)
Report the average rate on a new two-year fixed mortgage rate had crept up from 5.34% on 22 May to 5.38% on Tuesday morning. At the start of May the average was 5.26%. In May 2022 the average was about 3%.
Nationwide (31 May)
Following the 0.25% increase in the Bank of England Bank Rate on Thursday 11 May, mortgage members who are on Nationwide’s Base Mortgage Rate (BMR)1 and Standard Mortgage Rate (SMR)2 products will see a rise of 0.25%.
Rachael Mitchell, Head of Conveyancing at Lawson-West Solicitors commented:
“We experience that the number of properties coming to market remains steady and we see lenders are tightening their belts on offering lower rate mortgage products, perhaps positioning themselves for tougher market conditions in the autumn and winter of 2023, especially if inflation rates rise for a fourth consecutive time, which some economists predict will be the case.”
“Sellers will need to be realistic about house asking prices if they are to sell reasonably quickly in the current market. Those first-time buyers put-off by new higher mortgage lending rates will now be cautious about whether to purchase this year or wait until 2024, and this will have a delaying impact for property owners waiting at the top of chains, who have more expensive properties to sell and fewer first time buyers available to create stable chains of sale beneath them. Pricing will be key.”
