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Buyers return to market as bank rate stalls

Inflation drop and bank rate pause boosts buyer confidence as mortgage rates start to edge lower.

Words by: Nic Hopkirk

Senior Editor

Buyers, boosted by the prospect of lower mortgage rates, are returning to the housing market. 

Estate agents have seen enquiries on homes for sale rise by 12% since the August bank holiday.

And while this improvement comes from a low base (buyer demand is still 33% down on what it was this time last year) demand is now closely tracking  2019 levels.

A line graph showing the level of buyer enquiries between September 2018 and September 2023, with peaks after the 2020 general election and stamp duty holiday extension, and troughs after the mini budget and mortgage rate rises.

September traditionally sees more buyers returning to market, but this uptick in enquiries also demonstrates improved consumer confidence, which is now at a two-year high.

This is particularly good news for sellers in southern England and the capital, who have been hit hardest by rising mortgage rates impacting demand: buyer numbers are up 19% in the South East and 16% in London. 

The number of new sales agreed has also increased and is now closely tracking 2019 levels.

In 2021, the number of homes available for sale plummeted amid a buying frenzy. But supply levels are now returning, giving buyers more choice.

Prospect of lower mortgage rates boosts buyer confidence

Our Executive Director of Research, Richard Donnell, says: ‘Better than expected inflation news and a pause in base rate rises have softened expectations over the trajectory of future borrowing costs.

‘Our consistently held view is that mortgage rates over 5% mean lower sales and year-on-year price falls. 

‘The closer mortgage rates get to 4%, the more buyers will come back into the market, supporting sales and pricing levels.’

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Buyers unwilling to compromise on next home priorities

Buyers aren’t giving up on their hopes of achieving a home that will suit their needs for the next 10 years.

Rather than making compromises, first-time buyers are looking at longer mortgage terms to ensure the home they buy will suit their needs.

While mortgage rates running at over 5% have reduced buying power by 20%, buyers are still looking to buy the same type and size of property, at the same prices, as they were in the summer of 2022.

There are some regional variations: in London, for example, demand for apartments has increased among first-time buyers, but the overall trend is that buyers are holding out for the home they really want.

‘It seems many buyers are waiting for either a fall in house prices or mortgage rates,’ says Donnell. 

‘This is why sales volumes are set to be 20% lower this year and 28% lower for those buying with a mortgage.

‘An unwillingness to compromise is a rational approach as buying a home is a big and expensive life event.

‘Younger buyers are taking out longer mortgages to boost buying power, as they want to buy a home they are going to be happy in for a decade or longer.’

A bar chart showing the percentage share of buyer demand for different property types and sizes in Q3 2022 vs Q3 2023. It shows there are similar numbers of buyers interested in each property type as there were last year.

House prices fall as buyers wait for lower mortgage rates

Many homeowners have delayed moving while the mortgage market has remained volatile this year and this, in turn, has impacted house prices. 

Our index has recorded a 0.5% price fall over the last year - the first annual decline for over a decade - since June 2012.

The biggest house price falls are being seen in southern England, where homes are more expensive, meaning buyers need bigger mortgages to secure them.

In Scotland, where prices are 40% below the UK average, annual house price growth is running at +1.6%.

Over the whole of 2023, we expect house prices to fall 2-3% from where they were in 2022.

But that would mean prices are still 17% higher than they were at the beginning of 2020.

Even if mortgage rates dip below 5%, house prices are likely to continue falling this year and into the first part of 2024.

But a modest dip in prices isn’t enough to improve buyer affordability. That has to come from lower mortgage rates.

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