Market Update for the Final Quarter of 2022

Hi Guys,
James here from Next Place Property Agents and I’m just going to give you a market update for the final quarter of 2022.

So, buyer demand has actually dropped by a third since the mini budget, across all UK markets. The sudden increase in mortgage rates represents the largest interest rate shock for new buyers since the late 1980s. The immediate impact has been felt by the households who don’t have mortgages arranged at the cheaper rates that were available prior to, and during the pandemic. This is the reason why new buyer demand has fallen by a third since the mini budget.

Events are moving fast in the world of politics and of course the financial markets. Already, the money markets are adjusting to a changing political outlook, where stability in the UK’s public finances are imperative. The big unknown that remains is how much further central banks will need to raise interest rates to bring inflation back under control. A recent speech from the Bank of England suggested markets were overestimating how much higher interest rates will rise but only time will tell.

What is clear though is that mortgage rates are not going to return to the ultra-low levels of recent years and home buyers need to adjust to the fact that 4-5% rates are set to become the norm in the future. The most important part of this equation is how long mortgage rates for new buyers stay at over 6%, and how quickly they might fall back to a more manageable 5%, a level we see as a tipping point for house price reductions.

Should mortgage rates fall back quickly in the next quarter, the outlook for 2023 will be very different, compared with the prospect of mortgage rates remaining at or above 6% for the next 12 months. A return to 5% will bring some stability to the housing market and is likely to reduce the need for sellers to drop their asking prices to achieve a sale.

If mortgage rates were to stay above 6% for the majority of 2023 though, then UK house prices would need to fall back in order to reflect the hit to the purchasing power of those using mortgages. That said, strong UK-wide house price growth over the pandemic has added to the equity buffer for homeowners. In fact, most new borrowers have not relied on large mortgages to pay for their homes. Instead, they have used savings, or existing equity, to help them to secure their new properties. That means there is a huge equity buffer to absorb any reductions in sale price, and few people will experience going into negative equity.

The words negative equity tends to cause panic within certain people and a 10% decline in average prices would definitely wipe out a sizable proportion of the value increase made over the pandemic. Those losses would be most keenly felt in markets like London and Scotland, where lower price gains have been made since 2020. However, a 10% decline would only result in a small handful of negative equity cases. And those would mainly be seen through purchases made in 2022 with high loan-to-value mortgages. This highlights how the housing market has been increasingly driven by buyers using their existing equity, rather than those reliant on high loan-to-value mortgages.

However, that said, 2022 was a very strong year for property and nearly 300,000 sales are still going through this autumn, taking the years total sales to 1.3 million. A Short supply means prices will remain buoyant for the rest of the year and we don’t anticipate any impact on house prices until 2023. In fact, properties are still selling quickly and at strong prices as long as they have come to market at the correct price and with the correct marketing to begin with.

We are however starting to see the seasonal trend of the Christmas slowdown happen slightly early this year, with the market slowing now instead of the usual time of the end of November. An average price decrease of 1% is also expected which is on trend and inline for this period every year for the past decade.

So, If you do have any questions or you would like to discuss anything mentioned in this market update then please feel free to give us a call here at Next Place on 01827 50700 and we will be more than happy to have a chat with you or even pop in for a coffee.

Take care guys and if we don’t manage to catch you before then have a fantastic Christmas and a great new year.


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