Sales agreed fall as buyer demand decreases
Buyer demand peaked in May earlier this year and has been falling since then.
Higher mortgage rates, combined with the usual summer slow down, have prompted some buyers to re-evaluate their home purchase decisions.
When compared with the last five years, demand this July was down by a third, translating into 12% fewer sales agreed for the month.
The fall in the number of offers is impacting family-sized homes more than smaller properties.
We explore why this is happening and what it really means for sellers.
Why are family-sized homes attracting fewer offers?
Our recent analysis of sales agreed in July shows that offers for 3 and 4-bed houses are down compared to the same period in previous years.
Many aspiring buyers are scaling down their requirements as higher mortgage rates mean they have less to spend on a property. Smaller budgets are translating into lower demand for larger homes.
Furthermore, cost-of-living challenges and higher mortgage rates are reducing the appetite to upsize from those who are already living in well-sized properties.
Feeling little sense of urgency to move, such buyers are likely to be adopting a wait-and-see approach, awaiting more favourable market conditions.
Large homes have been selling well in recent years - 3 out of 5 properties changing hands between 2020 and 2022 were 3 or 4-bedroom houses. But the pent-up demand for family houses is now past its peak, which means fewer sales for these types of properties.
What does it mean for house owners planning to sell?
Lower demand for this property type means that the selling process may not be as smooth as in recent years.
Compared to last year, it takes 12 days longer to receive an offer. But the time on the market is still shorter than before the Covid-19 pandemic started.
In light of lower demand, sellers of 3 and 4-bed homes should be prepared to adjust their prices when needed. The price achieved will influence how much a seller can spend on their next move.
As always, we are seeing a regional variation in this trend, showing that some areas are affected more than others.
Sales agreed of 3-bed houses are falling the most in the East Midlands (-46%), particularly in the northern part of the region in Lincolnshire (-62%).
In contrast, sales of 3-bed houses in Scotland are only 8% below the July average over the last 5 years. Areas such as Kilmarnock and Tweeddale are even posting over 20% increases in offers agreed for 3-bed houses.
Appetite for smaller homes uncurbed
Our analysis shows that the appetite for smaller homes hasn’t changed to the same extent as family-sized houses.
Sales of flats are much closer to the usual levels for this time of the year. In the North East and Scotland, sales agreed of apartments are even tracking above the seasonal average.
Our analysis of renting vs buying indicates that even in the 6% mortgage rates environment, buying the average rental property in northern England and Scotland is cheaper than renting it.
This potential for saving money explains why there are stronger sales of first-time-buyer properties in these regions.
Why are flats selling better than houses?
Our estimates show that when mortgage rates increase from 4 to 5.5%, buyers with the same monthly repayment budget will be able to borrow 15% less.
Smaller budgets are forcing buyers to adjust their expectations, which means smaller properties are becoming more favourable.
Modest price growth in recent years means that flats are now seen as a better value for money.
High rental inflation is also encouraging many renters to consider buying. Flats are often the cheapest option, making them attractive for first-time buyers.
Increased clarity around fire safety measures and the Leasehold Reforms Act, which reduces ground rents for some leaseholders, has added to the appeal of apartments.
A boost in flat sales is welcome news for apartment owners who are planning to sell.
This property type has underperformed in recent years and has typically been taking longer to sell, but recent trends point towards a recovery.
Higher activity is also likely to support the pricing of good-quality flats.