Is the UK Property Market Heading Towards a Grinding Halt?

Is the UK Property Market Heading Towards a Grinding Halt?

Over the next couple of years, the outlook for the UK property market is far from rosy. For the first time in a while, Nationwide’s latest monthly report revealed that UK property prices had started to retreat. Adding to the gloomy outlook, new research from the House Buyer Bureau is showing a worrying fall in transaction levels.

Around the world, economies are trying to find ways to fight inflation and slow down the rising costs, including food, interest rates, energy and all manner of other things. However, one of the things not rising is UK property prices.

For the first time in more than a year, UK property prices went into reverse. According to Nationwide’s latest monthly report, the average price of a property retreated by just under a per cent (0.9%) from September to £268,282. Some might argue that this is just one month and more data is needed; however, many experts believe that all of the ingredients are in place for a perfect property storm.

A financial adviser showing a figure to a borrower on his calculator

One of the biggest concerns for the UK property market is the rise in interest rates, which is necessary to combat inflation. In addition to rising rates causing grief for borrowers and making it less affordable for buyers, many lenders are becoming increasingly concerned about the UK government’s ability to get the country onto a firmer footing in the coming years, which has resulted in them becoming less enthusiastic when it comes to lending.

The recent raising of interest rates by The Bank of England to 3% (the biggest single hike in 33 years) is seen as a small taster of what is to come. When interest rates hit the 5-6% mark, some financial and property experts are foreseeing average price falls of 20% in the market and, potentially, far worse.

Financial experts discussing the rise in interest rates

Unless one is in the fortunate position where they don’t need to borrow funds to buy a property and don’t need to sell one before making a purchase, a slowdown and falling prices and the rise interest rates will be music to those people’s ears; however, for many others, it will be less than welcomed news.

New research from House Buyer Bureau could be showing that the UK property market is grinding to a halt. Over the last six months, the average level of monthly transactions fell by almost a quarter compared to the previous six months – and more worryingly, in some areas, the figure has been as much as 43%.

The House Buyer Bureau analysed sales volume data from the Land Registry, looking at the average number of monthly property transactions to have taken place in the last six months (January 2022 to June 2022 – latest available). They then looked at how this level of market activity compares to the six months prior (July 2021 to December 2021).

The research shows that in the last six months, an average of 61,651 homes have been sold across the UK on a monthly basis, 23.8% fewer than the 80,958 sold per month in the previous six months.

It appears that the market is running out of steam across the board, with every area of the UK market seeing a decline in average monthly sales volumes at a regional level.

The North East has seen the largest decline, with a 32.5% drop in transaction levels, while the North West has also seen a notable decline, down 28.3%, followed by Wales (-27.7%), the East Midlands (-27.1%) and Yorkshire and the Humber (-27.1%).

A traditional row of properties in a London street

While the London market has been far more muted during the pandemic property market boom, the silver lining is that the capital has been less susceptible to the current market slowdown. While all other regions have seen a decline of at least 20%, the London market has seen the average number of monthly transactions fall by just 8.4% in the last six months.

At the local authority level, the market is grinding to a halt to the greatest extent in the Forest of Dean. There have been just 71 homes sold per month over the last six months, down 43.1% versus the previous six months when 125 sales were completed on average each month.

Melton (-42.4%), Wyre (-41.1%), West Oxfordshire (-40.5%), Newcastle (-40.2%) and Hambleton (-40%) have also seen a drop of 40% or more, while Copeland (-39.6%), East Lindsey (-38.9%), Boston (-38.5%) and Herefordshire (-38.4%) also make the top 10.

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented, “We’ve suspected for quite some time that the market was beginning to lose momentum following such a sustained period of heightened market activity.

While there has yet to be any notable decline in topline house prices, we’ve seen previous signs that mortgage approvals were stuttering, and we’re now starting to see this translate to a drop in transaction levels.

This decline is only going to intensify moving forward as the increased cost of securing a mortgage continues to climb to some of the highest levels seen in years. With more buyers being deterred from entering the market, sellers will start to find that they simply can’t expect to secure the same price as they would have during the dizzying heights of the pandemic market boom.

As this pendulum shifts, there’s no doubt that house prices will start to fall, and it’s only a matter of time before this decline surfaces.”

Read more property news and features here.

Is the UK Property Market Heading Towards a Grinding Halt? 2

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