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House buyer demand drops 44% in wake of mini Budget

Nick Cheek
Written By:
Nick Cheek
Posted:
Updated:
28/11/2022

House prices have grown 7.8%, the slowest increase since November 2021, and prices on 10% of homes were reduced by 5% or more since September, according to new research. 

New sales fell by half in the hottest markets following the release of the government’s mini Budget, according to Zoopla’s House Price Index, which tracked data from October on 35% of Britain’s housing stock by volume in 20 cities.

Demand was down 44% with sales 28% lower than a year ago, indicating that the housing market had stalled in October after the release of the government’s mini Budget in September under then-Prime Minister Liz Truss.

Regional differences

Asking-price reductions were greatest in southern England and prices were lowered on nearly one-third of homes for sale in the South East and East of England (outside of London) in hopes of finding buyers.

One brighter spot was Wales, which saw house price growth at 9.9% – higher than the average for the UK overall. 

And fewer sales alongside fresh supply were increasing inventory, although scarcity was expected to continue into 2023. (Housing supply was still almost 20% lower than before the pandemic, Zoopla said.)

Zoopla said demand had dropped to levels typically seen around the Christmas holidays as new buyers wait to see where mortgage rates end up and how the economy affects jobs and paychecks.

Pressure to move driving sales

So who was buying? Zoopla said new sales were being agreed by people with mortgage offers and people with a more urgent need to move, such as renters fearing steep rent rises or older buyers with more savings and less need to go the mortgage route to close a deal.

Zoopla forecast that mortgage rates would start the New Year at around 5% as demand and prices fall. The underlying cost of five-year fixed-rate mortgages has dropped in the past month, Zoopla said, leading it to expect rates closer to 5% come January. 

Sales volumes were reminiscent of the pre-pandemic period, down 28% from a year ago.  The downturn in sales volumes was even steeper in areas where higher borrowing costs ate into demand, including in the mid- to upper price bands in southern England (excluding London) and the East Midlands.

Smaller drops in sales volume were seen in some of the more affordable markets such as Scotland.

Zoopla: ‘Likelihood of double-digit house price falls low’

Richard Donnell, executive director at Zoopla, said “The housing market is adjusting to a reset in the level of mortgage rates but the likelihood of double-digit house price falls at a UK level remains low.”

While the outlook for house prices is weak, he said, “we see a shift to more needs-driven motivations to move in 2023 and beyond, which will support sales volumes. Ongoing pandemic impacts, increased labour market flexibility plus more retirement will continue to encourage moves.”

Cost-of-living pressures such as the rapid growth of rents will add to pressures and spur more people to become first-time buyers, he added.   

Future declines in sales, Zoopla said, would be concentrated in the high-value markets that are most sensitive to higher borrowing costs.