According to the Hilltop Credit Partners housing market outlook for Q2, this has put a dampener on transactions and prices this year. 

Although buyer demand is 3% higher than it was in 2019, as noted by Rightmove, monthly transaction volumes fell from 105,000 in June last year to 85,000 this year. 

Hilltop Credit Partners said there would be a “bounce in reported transaction volumes” in Q3, as indicated by a rise in mortgage approvals and sales agreed in Q2. However, it predicted the effect of increased mortgage rates on transaction levels would become apparent again in Q4. 

It noted that house prices were around 4.5% down compared to their peak, but were still 20% higher than pre-Covid levels. Hilltop Credit Partners predicted that prices could fall by 3% in Q3.  

High rates adding to rental demand 

Hilltop Credit Partners said despite the rise in rental prices, renting was now more affordable as it accounted for 32% of the average income. It noted that rental demand was strong against a lack of available rental properties. 

The firm also predicted that along with the “hostile policies” towards landlords, there would be an “above trend” growth in rent over the next three to five years which would create an opportunity for developers to provide modern, affordable options.  

BoE ‘behind the curve’ on the base rate 

Hilltop Credit Partners said improved wage and inflation data caused the markets to revise their expectations for the base rate peaking at 5.75 per cent instead of 6.5 per cent. 

It said in the near term, these expectations could fall further, adding that the Bank of England (BoE) could realise it acted too late to tackle inflation. 

Hilltop Credit Partners said the central bank was “behind the curve again” and “hiking too aggressively” as evidenced by the slowdown in headline inflation and wage data, which showed signs of the increases taking effect. 

It noted that five-year swap rates had fallen from a peak of 5.4% in July to 4.7% and expected lenders to reduce mortgage rates in light of this. 

The firm said: “Sharp drops in raw material prices, a slackening labour market, and the lagged effect of 13 rate hikes provide hope that the BoE is confronted with a more benign inflation backdrop in H2 2023, lowering the chances they will ‘over-tighten’ in the short term and potentially even providing cover for a ‘pause’ over the coming months.”