Exploring the resilience of the property market amidst economic challenges

The current situation

If you are a buyer, we know there is plenty of food for thought at the moment. August 2023 saw the Bank of England base rate rise for the 14th time in a row. It’s now up to 6.8%, which stands at more than three times the bank’s target of 2%.

This constant increase in interest rates has inevitably impacted mortgage rates which have also hit a 15-year high. In July, the average rate for a two-year fixed-rate mortgage stood at 6.8% according to Moneyfacts, but encouragingly today the 30-year yield curve, which predicts future fixed Mortgage rates, sits at 4.66% which suggests a more positive outlook going forward.

The current situation

June 2023 saw a 6% increase in seasonally adjusted residential transactions and a 5% increase in seasonally adjusted non-residential transactions relative to May. Year-on-year, the seasonally adjusted figures are down by 9% and non-seasonally adjusted down by 1%.

According to the UK House Price Index, the average house price in the UK in May 2023 was £285,861, a 1.9% year-on-year increase. In London, it was £525,629 in May 2023 up from £521,561 in the same month last year.

More recent figures show property prices have fallen nearly 5% from their peak, having previously risen steeply by around 25% between the start of 2020 and Autumn 2022.

But they remain high, and this can be challenging for a buyer in the current climate. Your mortgage costs have gone up, but the price of housing has too. It means that making the right decisions about your purchase is even more important.

Why is it happening?

The cost of mortgages is one reason why demand has remained strong. The fact that many homeowners are still on low fixed-rate deals makes them reluctant to sell when they would have to take out a new mortgage which could be at three times the interest of their existing deal. In addition, the rising prices impact what sellers can now afford to buy in their next step up the ladder.

This is leading to a shortage of homes for sale. In fact, there’s a supply-demand imbalance which is compounded further by inflation pushing up prices of homebuilding and limiting new-build opportunities. This imbalance is also impacting opportunities for price negotiation.

Counterbalancing this is the fact that, despite the high interest rates, wages are continuing to rise with a 7.8% annual growth in regular pay (excluding bonuses) between April and June 2023. This is the highest regular annual growth rate since comparable records began in 2001 according to the ONS. Even with inflation including owner occupiers’ housing costs accounted for, wage growth is still positive, albeit only marginally. Unemployment meanwhile stood at 4.2% between April and June, according to the latest figures released in August.  The figure is the highest since the three months to October 2021. This wage growth, as well as the relatively low unemployment rate, means that there are still some who are ready and keen to buy.

London will always be a desirable area to live. With 2023 marking our 30th birthday we’ve witnessed many ups and downs in the UK property market in our time and are always here to help you to get the best deal for your money, whether you are buying or selling. To pick our brains chat to an expert at your local branch today.