MHHG estate agents

The housing market in the UK has experienced a decline in affordability for new home buyers due to high inflation and increasing mortgage rates. This report explores the latest trends and predicts a potential decline in house prices by up to 5% in 2023. While there has been a recovery in sales volumes in the first half of the year, the momentum is not expected to be maintained in the second half. Higher mortgage rates are likely to impact buying power and lead to small quarterly price declines.

Sales Performance:
Total new sales agreed in the first 5 months of 2023 have recovered to within 2% of the 5-year average. This improvement in sales volumes has resulted in a small increase in the 3-month rate of house price growth. However, there are wide regional variations in underlying market conditions, with some areas experiencing higher sales volumes while others struggle.

Market Conditions:
Recent data indicates that sub-5 % mortgage rates are consistent with +/-2% house price inflation. Sales agreed over the last 4 weeks have been 8% above the average for the last 5 years, driven by households with cheaper finance looking to secure homes before mortgage rates spike higher. However, there have been early signs of a decline in demand, dropping below 2019 levels, which is expected to increase over the summer.

Price Growth:
While quarterly price falls have slowed, the annual rate of UK price growth continues to slow rapidly and now stands at +1.2%. Regional variations in house price growth range from +2.5% in Wales to -0.8% in Northern Ireland. Average prices in London are slightly lower while all other areas are registering very low positive price growth.

Buyer Behavior:
There has been a decrease in the number of buyers in the market over the last 4 weeks compared to the average over the last 5 years, indicating reduced affordability. However, those remaining buyers are committed to moving homes, as evidenced by sales agreed running 8% above average. Sellers are accepting lower offers, on average 3.8% below the original asking price, and a significant proportion (42%) are accepting offers more than 5% below the asking price.

Impact of Mortgage Rates:
Higher mortgage rates are expected to hit buying power and squeeze more buyers out of the market, leading to small quarterly price declines in the second half of the year. Mortgage rates above 5% result in a reduction in buying power, with a 20% gap if rates reach 6%. However, the impact on house prices is more likely to slow the rate of price growth rather than drive significant year-on-year price falls.

Supply and Risks:
There are signs of an increase in the supply of homes for sale, with 18% more homes listed in the last 4 weeks than the 5-year average. This expansion in supply could increase choice for buyers and create room for negotiation on price. Mortgage arrears rates have increased off a low base, but measures to boost forbearance for mortgagees are expected to limit forced sales in the near term.

Conclusion:
The UK housing market is expected to see a decline in house prices by up to 5% in 2023. Affordability challenges caused by high inflation and increasing mortgage rates are impacting sales volumes and price growth. Buyers are becoming more selective and driving harder bargains on pricing. The key message for anyone serious about moving in 2023 is to be realistic on price and seek the expertise of local agents to plan their move.