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Property Market Update March 2023

The property market can be a confusing place with a myriad of reports, statistics and information about prices and transactional volumes appearing on a daily basis.

The only certain information on prices is Government data from registrations at the Land Registry but this data is usually some three to six months behind the market due to transaction times and delays in registration of sales.

The huge public-facing property portal Rightmove bases their data on asking prices which, whilst possibly useful for spotting trends, is largely meaningless when it comes to realisable values.

The residential property market in the UK is also really a series of more localised markets and “national” statistics, whilst grabbing headlines in the main stream media, are, again, only generic indicators of how a local market is actually performing.

There is no doubt that the market has changed over the last six months or so with a number of obvious key factors impacting on both price and transactional volumes.

  • During the main covid period the Government artificially boosted activity with reductions and holidays in stamp duty. This led to an increase in transactions, many of which were brought forward to take advantage of lower transaction costs but also led to an increase in prices due to demand exceeding supply and the availability of low cost money and cheap mortgage rates.
  • The end of the stamp duty “holiday” was quickly followed by turbulent macro-economic inflationary impacts such as Russia’s invasion of Ukraine, the ill-fated Liz Truss Government and an acceleration in the cost of living. These have contributed to the Bank of England taking decisions to try and curb inflationary pressures by raising base rate interest levels.
  • Inflation rose to c11% and everyone feels the increased costs of power supplies, food, fuel etc. It now looks as if inflation may have peaked and projections are for it to fall significantly in the coming months.
  • Mortgage rates, whilst not always directly linked to the base rate (swap rates and gilt rates impact just as much) rose sharply and, whilst there is now some sign of them levelling off and stabilising are significantly higher than they were a year ago. In the UK there are some 150,000 households every month whose fixed rate mortgage period comes to an end and who will be facing higher costs when re-mortgaging going forward although most lenders are mitigating these increases through mechanisms such as extending loan periods.

 

All of the above has naturally affected affordability and reduced the desire of discretionary movers to commit to moving. Prices have reduced and whilst forecasts range from around a 7% reduction to a 40% reduction in values over the next year or so, transactional activity in the market remains at around the average of the last ten years (ignoring the artificially boosted covid period).

There will always be people who need to buy and sell. Death, divorce and debt are the three D’s that people often cite.

There are clearly not as many active potential buyers looking as there was a year or two back but there are enough to maintain a decent market. Anecdotal evidence would point to property values on sales agreed being down some 5%-7% on the peak of a year or so ago. This means values are perhaps back to 2021 levels.

Of course, if someone is selling and buying then it is the differential between those values that is key. If someone is moving upmarket in terms of price then the gap between selling and buying is closing. It works the other way if one is seeking to buy at a lower value than the price being sold at.

Whilst we are currently seeing some unrest, particularly in the public sector, over wages. The Government is likely to largely “tough this out” and, as inflation reduces, the pressures may ease a little.

As I write, the stock market (FTSE 100) has risen to an all-time high of over 8,000 points and the FTSE 250 which is perhaps more representative of the UK, has also risen to near record levels. This shows growing confidence in the future economic position and is good news for major investors such as pension providers.

Mortgage rates have stabilised and lenders have started introducing better priced products albeit on lower loan to value loans.

The lettings market remains strong with demand exceeding supply but there are some signs that values may have peaked and affordability is, understandably, a key issue.

Tenants are more likely to stay put now rather than give up a tenancy as the availability of new stock to rent is low. Some landlords are leaving the sector and not being replaced by new landlords at the same rate. This will contribute further to the supply side.

Advice on transacting in the market at the moment would be to do your local research. Ignore the main-stream media headlines and look at what is happening where you wish to transact. Overpricing property will, almost certainly, mean no sale and a worsening chance of a sale if values continue to ease downwards. Competitively priced property is still attracting strong interest and competition will ensure the best price being obtained in the market.

Seek out professional advice and put yourself in the best position to transact by having finance and property information ready.

Author

Michael Day MBA FRICS FNAEA FARLA

Managing Director Integra Property Services