Market Insight

Residential Property: Autumn Update

It is safe to say that the events of recent weeks have had a significant impact on the residential property market, as the volatility of macro-economic factors have made themselves known.
November 2, 2022
But what is happening on the ground, how are house prices changing and how can we expect the market to evolve? Gary Jeffries, Partner at Vail Williams, discusses.

A sliding trend

Recent events have undoubtedly led to greater economic uncertainty. However, house prices have been largely flat since June, up by around £250. This compares to a rise of more than £10,000 during the previous quarter, suggesting that the housing market has already entered a more sustained period of slower growth.

At the start of Autumn (September), the average UK house price fell slightly (-0.1%), the second marginal decrease over the past three months, with the cost of a typical home edging down to £293,835 from the previous month’s record high of £293,992.

However, this rose in October by 0.9%. Despite asking prices rising slightly, the annual rate of growth is set to continue to slow.

October saw growth slow for the fourth month in a row, falling to 7.8% (Rightmove) – a figure which may not yet reflect the full impact of rapidly rising interest rates or the recent economic turmoil, according to Rightmove.

This downward trend was also reflected in the latest RICS Residential Market Survey, which showed a decrease in residential demand and sales.

The net balance score for new buying enquiries was -39%, compared to -26% previously – the fourth consecutive month in negative territory, meanwhile agreed sales showed a net balance of -22% (-13% previously) and new instructions returned a net balance score of -15% (previously -6%).

Predicting what happens next in the context of the many variables now at play, is challenging, not to mention the fact that the housing market has consistently defied expectations in recent years.

Gary Jeffries, Partner.

What does the future hold?

Whilst stamp duty cuts (one of the few items pushing ahead despite the ‘mini-budget’ reversal), the short supply of homes for sale and a strong labour market all support house prices, the prospect of continued interest rate rises amid the cost of living squeeze, together with the impact of higher mortgage borrowing costs on affordability, are likely to exert even more downward pressure on house prices in the months ahead.

Current turmoil means we can expect to see much lower residential property market activity throughout Autumn.  However, sales dependent on mortgage deals agreed before the 23 September should still complete.

If the uncertainty in the mortgage market continues, buyer caution may quickly shift the balance of supply and demand over the next few weeks.

Bellway Homes has already reported a fall in new house reservations of 12.40% to just 191 a week over the period since 1 August 2022, with this trend expected to continue into October.

This compares with 218 a week in the same period last year and 239 a week in 2020, at the peak of the ‘race for space’ during the COVID pandemic.

Meanwhile, Barratt Homes has also stated that its private sales per site in the period since the start of October had fallen 47% on the previous year.

Volatility calls for context and prudence

Of course, the Ukraine conflict is likely to impact the residential property market, particularly in London amid continued Russian sanctions where much high-end residential property is Russian owned.

Beyond the impact on the UK economy and housing market, it will also have wider consequences for global economies.

We have already seen oil and gas prices increase, alongside the cost of commodities, resulting in rising inflation. Together, this will affect all purchasers as buyers will be faced with higher mortgage rates.

However, whilst the events of recent weeks will undoubtedly be a cause for concern for homeowners, we mustn’t forget that the unprecedented rate of property price inflation we’ve seen in recent years has been far above the historic average.

It’s important to look at slower growth in this context – since the start of the pandemic average property values have risen by around 23% (almost £55,000) with detached house prices up by more than £100,000 over the same period.

Yes, there will be a macro-economic impact on the residential market which will create volatility and fluctuations, and yes, we have seen a radical change of sentiment overnight before, particularly after a period of sustained growth.

But this shouldn’t give rise to a sense of panic. Rather, we are likely to see much more prudence – both from house buyers and lenders – the latter of which will need to exercise elevated lending caution over the coming months.

To find out about our residential property constulancy services or to discuss your needs further, don’t hesitate to get in touch.