Property Market Update – September 2023
The State of the UK Housing Market: Key Trends and Projections
The UK housing market is experiencing its first annual price decline in over a decade. A modest -0.5% decrease in house prices over the past year marks a shift from the rapid growth seen during the pandemic. This in-depth post examines the key factors shaping today’s property market.
Regional Variations Reflect Economic Impacts
The housing market is seeing a clear north-south divide. While prices in the South East and East of England have dropped -1.5%, Scotland has enjoyed a 1.6% increase. Cheaper northern regions continue rising slowly thanks to lower average property values.
Higher mortgage rates have a disproportionate impact on more expensive southern markets, where larger deposits, mortgages, and incomes are required. With the average mortgage rate for a 75% loan-to-value ratio now 5.1%, buyer purchasing power has fallen 20% since early 2022. This prevents more people from moving in higher-priced areas.
In contrast, Scotland, the North of England, and Wales see ongoing slow price growth given lower average values. Top price increases in Scotland are found in North Lanarkshire (3.0%), South Lanarkshire (2.9%), and other areas near major cities. Gains here represent £3,000-£8,000 added over the past year.
These regional variations reflect how economic factors like mortgage rates influence market behavior differently depending on local dynamics. More expensive regions suffer larger declines when financing costs rise.
Cautious Buyers Remain Sidelined
Despite falling prices in many areas, buyer demand across the UK has risen 12% since August. This uptick is partly seasonal, but also shows growing optimism driven by expectations that mortgage rates could decrease.
However, today’s buyers seem reluctant to compromise on their property preferences despite market conditions. With mortgage rates still above 5%, there has been little change in price ranges or types of homes drawing interest.
Rather than rush into a purchase, many seem inclined to wait for a potential drop in prices or mortgage rates before making a move. This prudent approach reflects general economic uncertainty. Even with more options, buyers are cautious.
Further Small Price Declines Projected
Housing market experts anticipate home prices will see further small declines throughout autumn 2022 and into 2024. A projected 2-3% decrease by end of 2023 would represent only a fraction of gains made during the pandemic buying surge.
In the near-term, affordability is unlikely to improve dramatically given projections. However, prices remain around 17% higher than in early 2020 before the rapid pandemic escalation. This means despite recent drops, most homeowners enjoy a sizable buffer.
Ongoing economic headwinds will exert downward pressure on prices, but declines expected to be gradual rather than sudden, barring an unexpected shock. This outlook comes with caveats and depends heavily on how key factors like mortgage rates shift.
Mortgage Rates Central to Market Activity
Mortgage interest rates are central to housing market activity and strongly influence both buy and sell decisions. With indications rates may soon dip below 5%, improved affordability could reinvigorate buyer demand.
As financing costs fall in the coming months, buyers’ purchasing power stands to get a significant boost. This shift could drive increased home sales after months of constrained activity, provided economic fundamentals remain stable.
Some analysts suggest if mortgage rates drop closer to 4%, buyer demand would strengthen markedly, bringing many sidelined purchasers back into the market. However, this is unlikely to instantly reverse price declines or lead to rapid home value appreciation given broader economic conditions.
Buyers Capitalizing on Discounts
Favorable market conditions for buyers mean discounts off asking prices are increasing, averaging 4.2% or £12,125 in savings. In London and the Southeast, motivated sellers are cutting initial list prices by 4.8% on average.
With around 80% more homes for sale than in September 2021, buyers currently hold leverage in negotiations. Savvy purchasers are capitalizing on this dynamic to negotiate better deals. Sellers recognize lowering prices can help attract more interest.
If mortgage rates fall as projected, however, supply may begin to adjust. Some prospective sellers are also waiting for more favorable conditions before listing. This could gradually shift the balance over the coming year.
Regional Spotlights: London and the Southeast
* London – Once rapid price growth has reversed, with average values down 1.5% (-£25,000). Reduced foreign investment is a factor. Discounts have hit 5.0%. But significant undersupply still supports long-term growth.
* Southeast – This region mirrors London’s price falls at -1.5% annually, driven by unaffordability. The commuter belt is hit harder as rail strikes add frustration. Big discounts in Hertfordshire. Cambridge remains resilient given its global profile.
* East of England – Prices down just -0.5% on average, but discounts are sizable at 4.5%. Technology and life sciences hubs around Cambridge and expanding ports help counterbalance London’s woes. The best future prospects in the region.
## Regional Spotlights: Scotland and Northern England
* Scotland – The standout for price growth at 1.6%, but this pace is slowing. Oil/gas and technology sectors adding jobs, while scenery and lower prices attract workers from southern England. Aberdeen and Edinburgh both appealing.
* Northern England – Manchester, Liverpool and Leeds continue to rise around 1%, buoyed by investment and upgrades. Major transport projects support commuter belt growth. Newcastle and York dragged down by proximity to slower eastern areas.
* Yorkshire and The Humber – Gains mostly slowing to 0.5%, but Hull is benefiting from freeport status attracting new jobs. Leeds remains the star performer, while Sheffield neighbours slower-growth South Yorkshire.
The Outlook Going Forward
The UK housing market remains in a state of flux, with complex factors interacting to shape prices and sales activity. While prices have dipped in recent months, signs point to moderation rather than collapse.
Much depends on how mortgage rates and inflation trend, which influence buyer demand and consumer confidence. But expectations are for a warmer spring selling season if affordability shows signs of improvement.
Regional variations will remain, as economic conditions have divergent impacts. Scotland and parts of northern England seem poised for steadier near-term activity, while London and the southeast face more uncertainty.
Though predicting future movements is difficult, the market has already weathered the worst of the post-pandemic economic storms. There are nascent signs of optimism for buyers and sellers ahead.
In Conclusion:
While the UK housing market faces ongoing uncertainty, the worst impacts of the post-pandemic economic cooldown appear to have passed:
– House prices have declined modestly, with further small decreases projected short-term. However, significant collapses remain unlikely barring major shocks.
– Regional variations are emerging, with northern England and Scotland faring better so far than expensive southern areas. Economic conditions drive localized trends.
– Buyers are acting cautiously, awaiting better affordability before purchasing. Mortgage rates are central to activity levels over the coming year.
– Discounts are increasing as motivated sellers adjust to shifting dynamics. But supply may tighten when market conditions improve.
– Broad optimism could return by mid-2023 if mortgage rates fall and inflation eases as projected. Markets dislike uncertainty, but some clarity may emerge.
Key Takeaways
– The UK housing market is moderating from an extremely heated pandemic period, with prices stabilizing albeit at lower levels.
– Much depends on the economy, especially mortgage rates and inflation. Improvements here could renew growth.
– For now, buyers retain leverage to negotiate discounts. Sellers must price appropriately.
– Patience and prudence are wise strategies in periods of flux. Avoiding rash moves pays off long-term.
– While significant risks remain, there are nascent signs of a brighter future by mid-to-late 2023 as headwinds decrease.
In uncertain times, adaptability and smart decision-making are key. The UK housing market continues to be shaped by complex forces, but has already weathered the steepest downturns. For buyers, sellers, and homeowners alike, both vigilance and hope can prove warranted.