MHHG estate agents

The sales market in the real estate industry has experienced an uptick in buyer demand following a decline over the summer. This increase in demand, although off a low base, is partly driven by seasonal factors and improved consumer confidence.

However, despite the rise in enquiries, buyers are unwilling to compromise on their desired property size and type. Mortgage rates, which remain over 5%, have reduced household buying power, leading buyers to wait for either a fall in house prices or mortgage rates. While house prices have seen modest declines, they are expected to continue falling over the next few months. The potential for lower mortgage rates in the future could support sales volumes and market liquidity.

Demand Trends

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• Enquiries to estate agents have increased by 12% since the August bank-holiday weekend. However, demand remains 33% lower than a year ago and in line with 2019, indicating the recovery is off a low base.
  

• Southern England, particularly the South East and London, has experienced notable improvements in demand, with a 19% and 16% increase, respectively, over the last three weeks. This region had weaker demand in 2022.
  

• Buyers are unwilling to compromise on the size and type of home they are looking for, with the share of buyer demand by property type and size remaining virtually the same as a year ago. A similar pattern can be observed for demand split by price band.
  

Price Trends:

• House prices have experienced modest declines over the last year, recording a 0.5% fall since June 2012. The decline has been concentrated in southern England, where higher mortgage rates have had a greater impact on pricing.
  

• In Scotland, where prices are 40% below the average, annual house price growth is running at +1.6%.
  

• The report predicts small month-on-month declines in house prices over the autumn, ending the year 2-3% lower than 2022. Despite the reductions, average prices would still be 17% higher than Q1 2020, just before the pandemic.
  

Mortgage Rates

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• Lower mortgage rates are expected to improve affordability and buying power more than falling house prices in the next 12-18 months.
  

• The cost of finance to banks for fixed-rate lending has fallen over the last month, providing room for banks to reduce mortgage rates. However, the underlying cost is still almost 1 percentage point higher than in Spring 2023.
  

• The average 5-year 75% LTV fixed-rate loan across the UK's biggest lenders currently stands at 5.1%, with expectations for slow falls into the high 4%s.
  

• Mortgage rates over 5% are predicted to result in lower sales and year-on-year price falls, while rates closer to 4% would attract more buyers and support sales and pricing levels.
  

Buyer's Market:

• Buyers continue to benefit from a significant increase in available homes for sale compared to September 2021, with a 80% rise in supply.
  

• The discount to the asking price for newly agreed sales has increased, averaging 4.2% or £12,125 off the original asking price. Although this is the highest level since March 2019, it is still below the peak in late 2018.
  

• Discounts are greater in London and the South East at 4.8% compared to the rest of the UK at 2.8%.
  

• landlords selling previously rented homes, typically priced 25% lower than the wider market, are contributing to the increased supply.
  

Outlook:

• The housing market is adjusting to higher borrowing costs, with mortgage rates having more than doubled since last 2021. This, combined with increases in the cost of living, represents a significant adjustment for home buyers.
  

• The impact on pricing has been modest compared to the hit to buying power, likely due to forbearance by lenders, tougher mortgage regulations, and a strong labor market.
  

• Housing sales volumes are expected to reach 1 million in 2023, 20% lower than 2022. However, new sales volumes are holding up better and tracking above 2019 levels.
  

• Some buyers are returning to the market this autumn, while others are waiting for the outlook on mortgage rates and holding out on their property requirements for their next purchase.
  

• Lower mortgage rates, if achieved in the future, will support sales volumes and market liquidity. However, prices still need to continue moving lower in the most unaffordable areas to boost buying power and attract more potential buyers.
  

Conclusion:

The sales market in the real estate industry has shown signs of improvement, with an increase in buyer demand and the number of new sales agreed. However, demand remains lower than previous years, and buyers are waiting for lower mortgage rates or house prices before making a purchase.

Modest price falls have been observed, primarily in southern England, while the potential for lower mortgage rates could support sales volumes and market liquidity. It remains a buyer's market, with discounts to achieve a sale and a significant increase in available homes for purchase. The outlook suggests that mortgage rates below 5% would attract more buyers and potentially lead to a recovery in the market.