Recent data analysis has uncovered a notable downturn in the housing market, projecting 2023 to experience the most subdued number of home sales since 2012. Zoopla’s latest House Price Index has unveiled a sombre outlook for the year, estimating a mere one million completed sales. This decline translates to the average household relocating just once every 23 years, a significant increase of six years compared to figures from 2021.
The realm of cash transactions has managed to maintain relative stability, exhibiting a projected marginal decrease of 1% this year in contrast to the data from 2022. Conversely, mortgaged sales are poised to bear the brunt of the market downturn, with forecasts suggesting a staggering 28% reduction. This substantial drop is largely attributed to the surge in mortgage rates.
For the subset of current homeowners who rely on mortgages, constituting a third of annual sales, the path forward appears clear: a wait-and-see approach until a more favourable projection for mortgage rates emerges. This shift in perspective has caused new sales of three and four-bedroom homes to plummet by up to 40% in July when juxtaposed with the five-year average for the same period. While sales of smaller, more affordable homes have also suffered, the blow has not been as severe.
Moreover, the buy-to-let market is grappling with its own set of challenges. Mortgaged buy-to-let purchases now represent a mere 8% of annual sales. In southern England, a region particularly affected, prospective buy-to-let investors are now expected to provide a substantial 40-50% of the property value as equity in order to make the financial equation viable. Given the gross rental yield falling below 5% and dipping below the base rate, the appeal of such investments has significantly diminished.
In a slightly more positive vein, strides are being made in addressing the longstanding concern of housing affordability. With earnings experiencing a robust growth of 7% in the past year, the house price to earnings index anticipates a 9-10% enhancement in 2023. By year-end, this ratio is projected to mirror the 20-year average, stabilizing at 6.3 times the average earnings. Particularly noteworthy is the evident progress in London, where the price to earnings ratio is set to dip into single digits for the first time in 11 years. This shift is attributed to wages outpacing the growth of housing prices.
Richard Donnell, the Executive Director at Zoopla, shared his insights, stating, “The rapid deceleration in house price growth over the past year is a consequence of waning demand in the face of elevated mortgage rates. Southern England is witnessing steeper price declines due to higher mortgage rates, leading to decreased market participation. While the UK’s annual house prices have inched up by 0.1%, it’s the sales volume that has borne the brunt of elevated borrowing costs, particularly affecting those dependent on mortgages. Cash buyers seem more insulated and are on track to contribute to over a third of sales in 2023. Although mortgage rates are gradually subsiding, a drop below 5% is required to rejuvenate interest in moving homes during the latter half of 2023.”
Carl Jenkinson, the Director at Venture Properties, offered his perspective: “Despite intermittent turbulence owing to mortgage rate hikes, the market remains active. Our prices have steadied, accompanied by increased market competition. Continued investment in the North has sustained buyer interest. While buy-to-let investors have slightly receded due to mortgage rates and associated criteria, demand for rental properties remains strong.”
Nathan Emerson, CEO of Propertymark, remarked, “The encouraging alignment of house prices with rising earnings is enhancing homebuyer affordability, mitigating the impact of climbing interest rates. Our member agents report robust sales, although viewings and valuations have slightly dipped, indicating a trend toward serious buyers and proactive sellers. Properties listed by motivated vendors are experiencing swift transactions.”
As the housing market navigates these challenging waters, industry experts and homeowners alike remain vigilant for the evolving landscape of real estate in the coming months.