The UK housing market is preparing for a successful or successful spring

The UK housing market is struggling with rising mortgage rates and a sharp increase in the cost of living as it approaches the spring property sales season, threatening to derail deals and the government’s ambitions for more new builds.

Home sales at the end of February were lower than the booming market in 2022, according to Zoopla, and 2 percent lower than the five-year average. Persimmon’s FTSE 100 Housebuilders Taylor Wimby He said this week that new home sales are trending down 20 to 30 percent year-over-year.

Homebuilders and agents face a terrible hit to revenue if sales remain sluggish, making for a hit or miss spring as companies struggle to win buyers and turn in properties.

“It’s a really critical period,” said Tim Bannister, director of property data at Rightmove. “I think all eyes have been on how we started this year . . . and then, crucially, what the spring selling season looks like given the new higher interest rate paradigm.”

Agents and analysts say the real estate sector is still reeling from the “mini” budget in September, which wreaked havoc on the mortgage market as lenders took down loans and interest rates soared. Mortgage availability has improved recently but rates have stabilized at higher levels, adding financial pressure to buyers who also face the UK’s highest inflation rate in decades.

“Ultimately, we still don’t quite know which way the year is going to go,” said Jay Gittens, CEO of real estate agents Foxstones. “Consumer confidence certainly took a hit at the end of last year. We started this year worrying that this trend will continue.”

Companies have pushed their vending machines into high gear as they approach the traditionally busy spring season. Persimmon said it sent out “mystery shoppers” to test salespeople, and launched a retraining plan to adapt its tactics to rising borrowing costs and the end of a long-running government scheme to help first-time buyers get mortgages, called Help to Buy. .

“a lot [advisers] They used to sell with Help to Buy and very low interest rates,” said Dean Finch, CEO.

Homebuilders have also ramped up the perks available to buyers, including an offer to pay off mortgages for up to 10 months, as well as more typical freebies like upgraded kitchens and carpets. Those incentives have averaged 3 to 5 percent of sale prices so far this year, up from 2.5 percent last year at Persimmon and Taylor Wimpy, and have helped keep new home prices stable.

However, homebuilders have warned that their fortunes are tied to what happens in the broader housing market. There are 28 million homes in the UK. Last year, there would have been about 200,000 new homes for sale. So we’re a relatively small part of the market. “We’re excited about the pricing,” said Jenny Daly, CEO of Taylor Wimpey.

Real estate agents also work harder to find buyers and monitor prices more closely as clients become more selective and non-committal. Home prices fell 1.1 percent in February from a year earlier, the first annual decline since the Covid-19 pandemic briefly brought the housing market to a standstill in 2020. Sellers have to accept the biggest discounts to asking prices since 2018 to snag sales, by 4.5 percent on average in February according to Hometrack.

When prices don’t go up, it’s hard to be sure [a sale] It passes smoothly. There are more risks to the transaction and the offer, the agent must work hard to make sure that the parties do not fall out. . . “There is less urgency on the buyer side, but there are buyers,” said Dominique Agasse, CEO of estate agent Winkworth.

More deals than usual have fallen through following the initial agreement, Zoopla said, which means more homes are back on the market. A disappointing spring selling season will add to fears of a collapse in housing prices.

The coming months also represent homebuilders’ last hope to salvage the 2023 season, which has already been hit hard by the fall slump. The 2023 selling year kicked off in September last year, and that clearly coincided with the fallout from the “miniaturized” budget. “2023 is definitely going to be tough,” Finch said.

Warn taylor wimpy and persimmon 35 to 40 percent on an annual basis in the number of new homes they sell in 2023 if current sales trends continue. This scenario would leave a huge gap in the government’s target of building 300,000 new homes annually. The supply of new homes peaked at 242,700 in 2020.

“In terms of housing, we’ve really hit a sticky spot. The fundamental disconnect between supply and demand is getting worse. Every year we miss the government’s target for new homes, it gets worse,” Daley said.

However, analysts and executives say the market has recovered from the depths of last fall faster than expected. “What we’ve seen is the market returning so quickly after Christmas. That’s what surprises people,” said Tom Bell, Knight Frank head of housing research UK.

The cooler real estate market will mark a return to pre-Covid conditions after more than two years of intense deal-making, driven in part by the stamp duty holiday introduced after the first lockdown, and rapidly rising prices. However, Zoopla said demand this year is still 15 percent higher than 2019 levels.

“I think it’s really going to get better,” said Richard Donnell, CEO at Zoopla. “Whenever the price goes down it settles . . . or if people don’t think there are big price cuts, I think that will bring people into the market in the run-up to Easter.”

Agents said smaller properties and apartments are likely to be more attractive this spring, as higher mortgage rates weigh on buyers’ budgets, while cost-of-living pressure is likely to prompt more people to downsize or sell second homes that are expensive to heat. .

“I think we’re past the point of extreme pessimism, but I’m not saying there are no choppy waters ahead,” said Andrew Berratt, president of Savills Residential.

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