Demand for homes in London has halved
Demand for homes in London has almost halved, thanks to the disastrous mini-Budget as thousands of panicked buyers abandon plans to purchase properties.
Latest data from property portal Zoopla shows a 45 percent fall in the number of people making direct enquiries with estate agents, seen as an accurate measure of activity in the market. The fall is far bigger than the 37 percent decline for the UK as a whole whereas London could see falls of around 2 percent - less sheltered than the national average.
Fuelled by a post-lockdown buying frenzy, Zoopla said the average UK house price hit a record £259,100, but that figure varies across the country. From Kensington and Chelsea where it’s almost five times that amount, to East Ayrshire where it’s less than half the UK average. Figures show how the London market — where prices are at all-time highs and by far the most expensive in Britain — is most vulnerable to the impact of mortgage rate increases.
Conversely, people buying houses for the first time benefited from cuts to taxes on their purchases whereas quite many had to equally abandon their dreams of purchasing a house, as mortgages have skyrocketed or products have discontinued from the market. For instance, fixed mortgage rates have soared since the September 23 fiscal statement from ex-Chancellor Kwasi Kwarteng which sent the gilts market into a near death spiral.
The most expensive house prices in the UK. Source: Zoopla - September 2022 data
Similarly, data from analysts Moneyfacts show the average interest rate on a two-year fixed mortgage stand today at 6.45 percent, while the average five year rate is 6.28 percent. To recall, only a year ago, some deals were priced at less than one percent. The recent 0.75 percent hike in the Bank of England rate will immediately add around £115 to the monthly cost of a typical London mortgage.
Market commentators said they are seeing the number of price reductions increase as conditions swing from a sellers to a buyers market. “Our data shows asking price reductions are higher in outer London areas and the commuter belt where house price growth has been strongest across London over the pandemic,” said Richard Donnell, executive director of research at Zoopla.
The highest house price percentage growth in the UK. Source: Zoopla - September 2022 data
Meanwhile, one of the UK’s largest Building Societies has warned that house prices could crater by almost a third under the firm’s worst-case scenario as rate rises and economic uncertainty hit the market. Chris Rhodes, Nationwide’s CFO, said the “worst case” scenario was that house prices would fall by 30 percent from earlier this year albeit it is likely to be more a fall of about 8 to 10 percent.
Meanwhile brokers and agents said they foresee a big slump in market activity over the winter which is likely to feed through to a fall in prices. London-based British real estate services giant Savills predicted a 10 percent drop next year before they shoot up again in 2024 after the interest rate pain eases. According to Savills, the number of home sales is predicted to tumble by almost 200,000 to levels now seen since 2011.
Unfortunately, the hardest hit groups will be first-time-buyers and buy-to-let landlords who will struggle to manage their mortgages alongside the soaring cost of living. Cash buyers and those with large amounts of equity in their homes are likely to be less affected - meaning the top end of the market could hold up.
As dark clouds gather over the UK housing market, however, there is often a silver lining in a cloud in that house-prices are still expected to grow again between 2024 and 2027 - the average house price will reach £381,578 - marking a £22,290 gain over the five-year period. Savills research analyst Frances McDonald,, said London and the South East will then potentially be put "back in a position to deliver the strongest house price growth from 2027 onwards".
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