Is the UK housing market cooling?

Regardless of frigid climate and a heavy snowfall in Salisbury in south-west England this week, property agent Chris Husson-Martin is at work by 7am. “Nothing stops,” he mentioned, including that regardless of the snow “we solely had one cancellation”.

Like different property brokers throughout the nation, he’s working additional time to restore harm to the housing market inflicted by Liz Truss’s September “mini” Funds, which sparked a sudden soar in mortgage charges to about 6 per cent that Husson-Martin mentioned “very a lot freaked individuals out”. 

“We had offers that fell off the bed as a result of individuals couldn’t afford them anymore,” he recalled. However after mortgage charges steadied at about 4 per cent among the failed purchases have began to come back good — albeit at decrease costs. “We re-agreed two of them [with] the unique consumers,” he mentioned.

The reductions mark a significant shift after greater than two years of superheated home costs inspired by very low borrowing prices and authorities incentives which have now come to an finish.

The value reductions are amongst various indicators that the UK housing market is cooling. In January, mortgage approvals dropped to their lowest ranges since Might 2020, when the market was largely shut due to a Covid-19 lockdown. Excluding the pandemic, approvals had been at their lowest since 2009.

Separate knowledge revealed this month by mortgage supplier Nationwide confirmed that common home costs declined to £257,400 in February, from a peak of £273,800 in August 2022. The newest accessible land registry knowledge reveals they dropped by 0.4 per cent between November and December.

“I think that consumers’ expectations of what a home is value are resetting,” mentioned Tomasz Wieladek, chief European economist at asset supervisor T Rowe Value. He expects home costs to say no between 10 and 15 per cent from their peak and predicts that the market will see “a struggle of attrition,” between consumers and sellers that “consumers will ultimately win”.

An influential survey by the Royal Establishment of Chartered Surveyors revealed this week revealed that 60-70 per cent of properties bought for lower than their asking value final month. It additionally discovered that increased borrowing prices and inflation are squeezing budgets and dampening demand, which has been declining for 10 consecutive months.

The typical low cost to asking value throughout the UK in February was 4.5 per cent, in keeping with Zoopla, the property portal. However brokers say the market is fragmented, with reductions accessible for some varieties of housing, akin to flats, however little or no provide of in-demand properties, like household properties. The RICS survey reported the inventory of residential properties on the market is near its lowest degree since data started in 1978.

“It’s a actual shortage problem that’s holding costs fairly robust for household properties,” mentioned Sophie Sharman, head of gross sales at Hamptons in Balham, south London. She added that consumers in search of a house costing about £1.5mn in her space final 12 months “could be seeing 20 homes on a Saturday” however now they’re “possibly seeing two or three viable choices”. 

Brokers say the scarcity of residential properties might mirror potential sellers ready for a extra buoyant market. “Most individuals don’t want to maneuver or have to promote. As we present in 2008, reasonably than settle for a low value they simply . . . strive once more in a 12 months’s time,” mentioned Matthew Leonard, director at Winkworth in Tub. “It’s a determined scarcity of property and a few very, very pissed off consumers.” 

Nevertheless, some good offers may be present in less-favoured components of the market, notably flats, the place first-time consumers are a key a part of demand. “First time consumers gasoline that market. They’re simply so nervous,” mentioned Sharman. “They don’t seem to be getting the mortgage deal that they need, so they’re virtually asking the vendor to make up the distinction with the value.” 

These consumers are getting into a market with traditionally excessive home costs, which boomed throughout the pandemic. Regardless of the current decline, the common home value continues to be £41,000 increased than in February 2020, simply earlier than the primary Covid-19 restrictions had been imposed, in keeping with Nationwide. By comparability, costs grew by solely £10,000 within the three years to February 2020.

Consequently Nationwide discovered that first-time consumers’ mortgage funds have risen to 39 per cent of take-home pay, the very best proportion since 2008.

Some analysts predict consumers will alter to these increased borrowing prices and demand will return.

“Whereas there are plenty of headlines about costs coming down, they’re principally simply coming again to actuality after years of a Covid loopy market,” mentioned Leonard.