How is the property market reacting to the rising cost of living?

The latest data shows both buyers and sellers are adapting to the changing financial conditions more quickly than many had anticipated. Normally, at this time of year, asking prices show a marked increase as spring approaches. This year, the rising cost of living and mortgage rates mean budgets are being squeezed, slowing the previously frenetic pace of the housing market. In response, sellers have shown surprising restraint, keeping their asking prices down at more or less the same level as January. As a result, sales volumes are holding up well at just 11% below their typical pre-pandemic levels (2019) - a marked improvement on the 30% drop that occurred just after Liz Truss’ mini-budget.

It would be reasonable to assume sales to first-time buyers would be most affected by the current conditions, but their 7% fall is notably lower than the 11% average. That may well be because high rents and the lack of supply in the rental sector are making purchasing a property an increasingly attractive option.

Tim Bannister Rightmove's Director of Property Science says:

“The frantic market of recent years was unsustainable in the long term, and our key indicators now point to a market which is transitioning towards a more normal level of activity after the market turbulence at the end of last year. Agents are reporting that they are now increasingly seeing buyers who have more confidence and more choice albeit with revised budgets to accommodate higher mortgage rates.”

The other main indices are all painting a fairly similar picture. Although Nationwide’s figures, show prices fell by 1.1% last month, they also reveal consumer confidence in the economic outlook is improving. Nationwide therefore believe the market will remain subdued for a while but that “Conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets. Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months.”

Halifax’s index shows prices rose by 1.1% in February but despite their more positive figures, they also believe the market will remain subdued.

Kim Kinnaird, Director, Halifax Mortgages, says:

"Recent reductions in mortgage rates, improving consumer confidence, and a continuing resilience in the labour market are arguably helping to stabilise prices following the falls seen in November and December. Still, with the cost of a home down on a quarterly basis, the underlying activity continues to indicate a general downward trend.”

HOUSE PRICES AND STATISTICS

Of the three most up-to-date indices, only Nationwide’s was negative. Rightmove’s and Halifax’s show the market stabilising.

Nationwide: Feb: Avge. price £257,406. Monthly change -0.5%. Annual change -1.1%
Halifax: Feb. Avge. price £285,476. Monthly change 1.1%. Annual change +2.1%
Land Registry: Dec: Avge. price £294,329. Monthly change -0.4%. Annual change +9.8%
Zoopla: Jan: Avge. price £260,800. Annual change +5.3%
Rightmove: Feb: Avge. price £362,452. Monthly change +0.0%. Annual change +3.9% (asking prices on Rightmove) 

BUY-TO-LET

The small declines in national average rents over the last few months came to a halt with February’s 0.3% rise. It means rents have risen by 10.2% over the last two years, reaching £1,175pcm.

Andy Halstead, HomeLet and Let Alliance CEO, notes, though, that something different is going on in the capital. Unlike the rest of the country, the average rent decreased for the third month in a row. Back in November, rents had briefly risen above £2,000 pcm for the first time. There is no doubt, affordability is far more stretched in London, so rents may have hit a temporary ceiling, although demand remains incredibly high, supply constricted and voids are falling. In mitigation, tenants’ average salaries are also rising, but not as fast as rents.

Halstead says:

“It is still a little early to predict whether this will be a sustained pattern or whether London will follow the pattern of the wider country and see prices rise again in the coming months.”

What is clear is that the government needs to act soon to dissuade any more landlords from selling up, or shortages will become even more acute and rents will rise even higher. 

If you are thinking of buying or selling a home or an investment property, just give us a call at Phillip Arnold Auctions. You can see all the fantastic properties we have coming up in our next auction here.

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