By James Simons-
The UK’s property market is experiencing a significant slump in sales activity, with this year’s numbers projected to be the lowest since 2012, according to property website Zoopla. Approximately one million property sales are anticipated for the year, reflecting a nearly 20% decrease compared to the preceding year.
The underlying factors contributing to this decline are multifaceted, encompassing a surge in mortgage and rent costs. As financial institutions elevated lending rates, mortgage and rent expenses have escalated substantially, presenting a hurdle for both potential buyers and renters.
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The cost of securing mortgages has risen markedly from the ultra-low rates of less than 2% that many homeowners once enjoyed in previous years. Presently, the average rate for a two-year fixed mortgage deal stands at 6.74%, while a longer five-year deal typically carries a rate of 6.22%.
Amidst this financial landscape, houses purchased without the reliance on a mortgage – transactions completed with cash – are expected to demonstrate more resilience. These purchases, often driven by individuals or entities with the financial capacity to avoid borrowing, are poised to weather the challenging market conditions relatively well.
Existing homeowners who typically account for one-third of annual sales and rely on mortgages for their purchases are exhibiting more caution, seemingly awaiting a more favorable outlook for interest rates before proceeding with property transactions.
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Zoopla’s analysis indicates that the impact on sales has been felt most acutely in the market segment of three and four-bedroom homes, where transaction volumes have experienced a more significant drop compared to smaller, more affordable properties. In a similar vein, the buy-to-let sector has felt the squeeze due to higher mortgage rates, contributing to decreased activity in the property market.
The prevailing environment has led to fluctuations in property prices across different regions. Southern England, specifically, has witnessed more pronounced price declines. These drops have been attributed to elevated mortgage rates that have deterred prospective buyers, leading to a weakening demand in these areas. In contrast, other regions have managed to maintain more stable property prices, with varying degrees of affordability for potential homeowners.
Richard Donnell, executive director at Zoopla, highlighted the dynamic between property prices and borrowing costs. “While UK house prices are 0.1% higher over the year, it is the number of sales that have been hit hardest by higher borrowing costs, especially amongst mortgage-reliant buyers,” he remarked. He noted that a decline in interest rates below the 5% threshold could potentially stimulate an “increased appetite to move home” by year-end.
The disparity in affordability across regions is evident in data from the building society Halifax. London, often characterized by its elevated living costs, boasts homes priced at 9.3 times average earnings, with mortgage payments consuming 49% of earnings.
In contrast, the North East of England and Scotland exhibit more accessible housing markets, with properties priced at 4.9 and 5 times average earnings, respectively.
Inverclyde, a local authority area in Scotland, claims the title for the most affordable homes, with properties costing just 2.9 times average earnings.
As the property market grapples with these challenges, local experiences vary. Jackie Quinn, an estate agent in Surrey, noted shifts in prices within her area. While she observed a drop in house prices over the past six months, she acknowledged a changing landscape as the summer holidays come to an end.
She identified a trend of individuals moving out of London due to shifts in work patterns amid the pandemic, enabling them to acquire larger homes in suburban regions. However, the impact of higher mortgage repayments has led to some deals falling through, posing a potential obstacle to market activity.
As the market navigates these fluctuations, the role of interest rates and their effects on consumer decisions remains a central theme in the property market narrative.
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