Resilient Buyer Demand Persists Despite Impact of Rate Rises According to Rightmove

Posted on Monday, 17 July, 2023

According to the latest market analysis by Rightmove, the average price of properties entering the market this month has decreased to £371,907, representing a slight 0.2% dip below the usual 0% trend for this time of year. Despite this decline, price trends have displayed resilience and have exceeded expectations during the first half of the year, with average asking prices now 2.6% higher compared to January.

However, sales have been impacted by ongoing interest rate increases as the Bank of England seeks to control persistently high inflation figures. Rightmove’s data indicates that the number of sales agreed upon in June is now 12% lower than the more typical market levels observed in 2019, despite the unexpectedly strong performance in the first five months of this year.

Nevertheless, buyer demand remains robust, surpassing the levels seen in 2019 by 3%. Local agents report that homes priced appropriately continue to attract motivated buyers due to the scarcity of properties available for sale compared to historical standards.

Tim Bannister, representative of Rightmove, noted that the tightening of interest rates to slow down the economy is beginning to impact the housing market. Although prices and sales rebounded more strongly than anticipated this year, stubborn inflation figures and unexpected mortgage rate increases, despite previous expectations of stabilization, have contributed to the decline in prices and the number of agreed sales.

Nonetheless, buyer demand remains 3% higher than the levels observed in a more normal market year like 2019, buoyed by the shortage of quality properties for sale and ongoing housing needs. First-time buyers, those seeking to upgrade, and downsizers with higher deposits and lower mortgage requirements continue to actively search the market to avoid missing out on reasonably priced properties that are still within their budget.

The mid-market second-stepper sector and the top-of-the-ladder sector have been most affected by the decrease in agreed sales, with June’s figures trailing 14% behind those of 2019. Some discretionary movers in these sectors, who are looking to trade up and significantly increase their mortgages, are likely reevaluating their budgets and waiting to see the direction in which mortgage rates will move in the coming months.

On the other hand, the smaller home market sectors, particularly those with two bedrooms or fewer, have been less impacted, experiencing a 9% decrease in sales agreed in June compared to 2019. This segment, typically comprised of first-time buyers, has remained resilient throughout the first half of the year, reflecting the determination of many first-time buyers to navigate the uncertain mortgage market and enter the property ladder, particularly as rental costs reach record levels. Additionally, some individuals may be choosing early retirement and downsizing to smaller properties, potentially to release equity for their lifestyle or to gift a deposit to first-time buyers in their family.

Despite the decline in sales levels, there is no oversupply of properties on the market, with the number of available properties for sale currently 12% lower than the same period in 2019. Agents report that even with the challenges faced by the market, homes that are priced correctly according to local market conditions continue to attract strong interest from motivated buyers eager to make a move.

However, the risks of initially overpricing a property and jeopardizing the prospects of finding a buyer are highlighted in the latest research from Rightmove. Properties that require a price reduction are over 10% less likely to find a buyer compared to those that were appropriately priced from the beginning. Given the lower likelihood of selling due to current market conditions, initial overpricing significantly diminishes the chances of a successful sale.

The latest data from Rightmove’s mortgage tracker reveals that the average rate for a five-year fixed, 85% Loan-To-Value mortgage stands at 5.69%, reflecting a 0.49% increase compared to the previous month, although it remains below October’s 5.89% following the mini-Budget.

Tim Bannister comments on the challenges posed by persistent inflation and higher mortgage rates. Some potential buyers are putting their plans on hold until there is more certainty regarding the stabilization of mortgage rates and are also reevaluating their plans in light of increased costs. Nevertheless, a considerable number of motivated buyers who can accommodate rate increases within their budgets continue to inquire about homes for sale, maintaining the functioning of the market, albeit with lower sales levels compared to this time in 2019.

In conclusion, Bannister emphasizes that sellers who price their properties correctly from the start have a much better chance of attracting motivated buyers. A knowledgeable local agent can provide sellers with accurate evidence of achieved prices in their area.

Chris Druce, a senior research analyst at Knight Frank, suggests that buyers have become more cautious as expectations regarding the peak of interest rates have been revised upwards. This increased caution has made the residential property market highly sensitive to price, resembling the conditions before the pandemic. Despite this, deals are still being made, and pricing remains resilient.

Knight Frank expects prices to decline by 10% over the next year as more fixed-rate mortgages are renewed at higher rates. However, factors such as strong wage growth, low unemployment rates, leniency from lenders, and the availability of longer fixed-rate mortgages are expected to mitigate more significant price drops and provide stability to the housing market once the impact of interest rate increases becomes clearer.

Tomer Aboody, director of property lender MT Finance, notes that affordability is being negatively affected by ongoing rate rises, making it increasingly difficult for many prospective buyers to enter the market. As a result, sellers who fear receiving offers below their expected prices, coupled with fewer buyers due to lack of confidence and affordability, have contributed to falling transaction levels and prices. Aboody suggests that now may be an opportune time for the Bank of England to pause rate hikes and observe how the squeezed market responds.

Jeremy Leaf, a north London estate agent and former RICS residential chairman, affirms that these figures align with observations made in their offices, particularly following recent base rate increases. While there are still numerous cash or equity-rich buyers, they are taking their time to view the slowly increasing pool of available properties. Only after conducting thorough assessments, including stress tests, are these buyers making sometimes cheeky offers. Conversely, most sellers are not in a hurry to accept significant discounts, at least for the time being.