House sales slumped by 4% between January and February alone according to official government figures which record the number of residential transactions in the UK.
Experts said the falling numbers were a reflection of not only the high cost of living, but soaring interest rates and unaffordable mortgages.
Karen Noye, mortgage expert at Quilter, said the news did not bode well for the rest of the economy. “Lower residential transactions can have a cascading effect on the overall economy, as the housing market plays a crucial role in generating economic activity, such as construction and home improvement,” she said.
“Moreover, the slowdown in the housing market can also impact the household sector, as it can reduce consumer confidence and affect the wealth of homeowners.
“For the time being, the lack of transactions in the market will have a material impact on house prices, pushing them downwards as sellers compete for buyers, reversing how the market has operated over the last few years.”
Property market is simply ‘settling back’ to normality
Whilst the cost-of-living crisis and high mortgage rates is clearly having an impact on people’s homeownership plans, today’s drop in sales also comes following a period of extreme volatility.
The stamp duty holiday during the pandemic sent house prices rising to above-normal heights and then the fallout from the mini-Budget in September, when mortgage rates inflated at a fast pace, sent many people’s property dreams crashing.
So there are some experts who believe the drop in transactions is simply the market readjusting to normal levels.
Nicky Stevenson, managing director at national estate agent group Fine & Country, said: “The impact of last year’s mini-Budget and the subsequent rise in mortgage rates started to feed into lower property transactions at the beginning of this year.
“Due to the length of time it takes to complete on a property, many of these sales will have been agreed just as mortgage rates spiked last autumn, resulting in a number of transactions stalling due to affordability issues.
“While we will continue to see a slowdown in sales compared to 2022 and 2021, both years were remarkable outliers, driven by the race for space and stamp duty holidays.
“We can therefore expect to see the market resettle back into historic norms over the course of 2023, starting with an uptick of activity this spring.”
What is the outlook for house movers?
For anyone considering moving home, Noye said the mortgage market was likely to remain relatively stable over the next few weeks and months.
The Bank of England is due to make a decision on whether to increase interest rates again on Thursday (23 March) – but opinions are divided over whether there will be another hike this time.
Noye added: “Unless there are some substantial unexpected further shocks, mortgage rates are expected to continue to fall throughout the year.
“Fixed-rate mortgages are also likely to keep falling even when the Bank of England does raise interest rates, particularly if swap rates are maintained and competition between lenders vying for business continues to rage.”
She suggested, for those moving home, fixing to a two-year deal will minimise the time you spend on an inflated rate.
“For those happier to take more of a risk it might be worth opting for a tracker,” Noye advised. “Seeking advice on your specific circumstances is key though.”
