Is the UK housing market cold?

Despite the cold weather and heavy snowfall in Salisbury in the southwest of England this week, estate agent Chris Howson-Martin is working by 7am. “Nothing stops,” he said, adding that despite the snow, “we only had one cancellation.”

Like other real estate agents across the country, he’s been working overtime to repair damage to the housing market caused by Liz Truss’ September “mini” budget, which led to a sudden jump in mortgage rates to about 6 percent, which he said Howson Martin “Very Much ‘People Are Scared'”.

“We had deals that fell out of bed because people couldn’t afford them anymore,” he recalls. But after mortgage rates stabilized at around 4 percent, some failed purchases began to materialize – albeit at lower prices. “We agreed on two of them [with] original buyers.

The rebates represent a significant turnaround after more than two years of rising home prices spurred by lower borrowing costs and now-defunct government incentives.

Price cuts are among a number of signs of a slowdown in the UK housing market. In January, mortgage approvals fell to their lowest levels since May 2020, when the market was largely shut down due to the Covid-19 lockdown. Excluding the pandemic, approvals are at their lowest levels since 2009.

Separate data published this month by mortgage company Nationwide showed average house prices fell to £257,400 in February, from a peak of £273,800 in August 2022. The latest available land registry data shows they fell 0.4 per cent between November and December. .

“I question the redefinition of buyers’ expectations of what a home is worth,” said Tomasz Wiladek, chief European economist at T Row Price Asset Management. He expects housing prices to fall 10 to 15 percent from their peak, and predicts that the market will see a “war of attrition” between buyers and sellers that “buyers will win in the end.”

influential survey before Royal Institution of Chartered Surveyors published this week revealed that 60-70 per cent of properties sold for less than their asking price last month. It also found that rising borrowing costs and inflation are squeezing budgets and dampening demand, which has been declining for 10 straight months.

The average asking price discount across the UK in February was 4.5 per cent, according to Zoopla, the property portal. But agents say the market is fragmented, with discounts for some types of housing, such as apartments, but very little in-demand properties, such as single-family homes. The RICS survey reports that the stock of residential properties for sale is near its lowest level since records began in 1978.

“It’s a real scarcity issue that makes prices very aggressive for family homes,” said Sophie Sharman, director of sales at The Hamptons in Balham, south London. She added that buyers looking for a £1.5m home in her area last year would “see 20 homes on Saturday” but now “may see two or three viable options”.

Agents say the shortage of residential properties may reflect potential sellers waiting for a more buoyant market. “Most people don’t need to move or sell. As we found in 2008, rather than accept the low price they just . . . try again in a year,” said Matthew Leonard, manager of Winkworth in Bath. “It’s a severe shortage of property. Some buyers are very disappointed.”

However, some good deals can be found in the less favored parts of the market, particularly apartments, where first time buyers are a major part of the demand. “First-time buyers are fueling this market,” Sharman said. “They’re not getting the mortgage deal they want, so they’re almost asking the seller to make up the difference in price.”

Line chart for first time buyers, percentage of wages earned showing UK mortgage payments increasing

These buyers are entering a market with historically high home prices, which has boomed during the pandemic. Despite the recent decline, the median home price is still £41,000 higher than it was in February 2020, before the first Covid-19 restrictions were imposed, according to Nationwide. By comparison, prices have risen by just £10,000 in the three years to February 2020.

As a result, Nationwide found that mortgage payments for first-time buyers rose to 39 percent of homeowners’ pay, the highest percentage since 2008.

Some analysts predict that buyers will adjust to higher borrowing costs and demand will return.

“While there are a lot of headlines about falling prices, it’s basically just coming back to reality after years of a crazy Covid market,” Leonard said.

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