- Free Valuation
- Competitive Sales Commission Fees
- Free Mortgage Advice
posted 3rd May 2023
The housing market is showing signs of a soft landing, with our indicators of housing market activity and pricing pointing to a steady and sustained recovery in demand and continued growth in the number of new sales agreed. While house price inflation is slowing, the probability of a major price correction remains very low. Following the Easter break, demand for homes has reached its highest level this year, being decreased by 42% compared to the same time last year, but still 14% higher than in 2019. The stock of homes for sale continues to expand and is now 66% higher than a year ago, which is boosting the choice for buyers. The number of new sales being agreed is also increasing, being 6% up on 2019 and in line with the 5-year average. The housing market is expected to achieve 500,000 sales in H1 2023. The strongest number of new sales agreed is observed in Manchester and London. This can be attributed to more attractive affordability levels in these areas.
The annual growth rate of house prices in the UK has slowed down to +3%, with a modest quarter-on-quarter price fall of up to -0.7% observed in all regions and countries. However, the level of monthly price reductions is showing early signs of decreasing, suggesting that the main adjustment in pricing is likely behind us. It is expected that the UK index will register low negative annual growth by the summer and end the year at -1%.
The recent resilience of homebuyers in the face of higher mortgage rates was expected due to stricter affordability testing for new borrowers since 2015. First-time buyers (FTBs) have also demonstrated resilience, accounting for over one-third of sales last year. This made them the largest group of homebuyers, followed by existing owners using a mortgage and cash buyers. While higher mortgage rates should affect FTB demand the most, the majority of FTBs come from the private rented sector where they are facing steep increases in rental costs, up by 11% or £1,120 over the last year alone. A severe shortage of homes for rent is pushing more FTBs to consider homeownership, especially as mortgage rates fall to 4.5%. The main obstacles are the need for a deposit and the right level of income to afford a mortgage, which varies considerably across the country.
the preferences and prices of homes that first-time buyers (FTBs) wish to purchase and can determine the necessary household income and deposit for a purchase. The average asking price for a 2-bed property that an FTB is interested in buying is £210,000, while it is £230,000 for a 3-bed home. Due to the rapid growth in house prices in the last three years, the required household income for a 3-bed FTB home has risen by £7,530 to a total of £55,900, while the increase for 2-bed homes is lower, rising by £4,900 to a total of £51,000. In addition, the deposit required to purchase a 3-bed FTB home has risen by £4,650 to £34,500, while for a 2-bed home, it is £3,000 higher at £31,500.
FTBs facing increased buying costs can adopt various strategies to navigate the challenging market. Firstly, they could attempt to save a larger deposit or seek additional financial support from their families, which may prove difficult for renters given the rise in rental costs. Another option is to opt for a longer-term mortgage, providing extra buying power, as there has been a steady increase in mortgages with terms over 30 years. However, this comes with the additional cost of paying more interest over the long term. Alternatively, FTBs can focus on purchasing cheaper and lower-cost homes. While historically, low mortgage rates have enabled FTBs to purchase larger homes, the current higher rates and prices may push them to adjust their requirements, particularly in areas with the highest price increases since 2020. Three-bed homes remain the most sought-after property type but buyer interest has decreased to 40% in Q1 2023, while interest in one and two-bed flats is on the rise. The increased ability to work from home has encouraged some FTBs to expand their search area to get the size of home they want at the right price. As a result, demand for homes in suburbs with easy access to transport into major employment centers remains high, and prices continue to rise. Areas such as Oldham in the North West, Wolverhampton in the Midlands, and Selby in Yorkshire, which are easily accessible to major cities, continue to experience above-average house price growth (over 5%).
