House prices in the UK dropped 11% in 1 year (Source: www.housepricecrash.co.uk)
Troubling statistics released show that in January 2023, house sales were the lowest that they have been in 8 years since January 2015. Why has this happened? Will it get better? And what could this mean for people looking to get on the property ladder and build their first property?
In a report produced by Tom Howard for The Times, it was claimed that house sales in the UK in January 2023 were at their lowest level they have been since January 2015. This does not mean that they are the lowest level they have been throughout the entire 8 year period, just the Januarys in this period. To many brokers, this revelation is a bit of a shock as a lot of us saw an incredibly busy January this year after a shocking three months of market uncertainty and rate increases. But the figures do show that normality hasn’t quite returned to the market yet, and purchaser appetite still hasn’t recovered. But why?
Why Are House Sales Still Low In January 2023?
There are a lot of things that we can blame for this slump in purchases, but the most glaring elephant in the room is the mini budget. We have spoken so much about the mini budget over the last few months, but this disastrous political move will no doubt go down in history as one of the most ill thought out plans in UK politics. A cut to taxes that really should not have been made during a rapid inflation rise forced the Bank of England to raise the base rate and caused the Prime Minister and the Chancellor of the Exchequer to both lose their jobs.
A rise in the base rate meant mortgage lenders panicked and inflated their mortgage rates to ridiculous levels, discouraging potential borrowers from getting a mortgage and/or purchasing a property. And therein lies the problem. A problem which it looks like we have not yet recovered from. Yes, mortgage rates are coming down almost daily now that things have calmed in the market, but it doesn’t seem to be quite low enough to instil confidence in potential home buyers again.
House Sales Dropped By 11% From January 2022 to January 2023
According to both The Telegraph and WhatMortgage, house sales in the UK dropped a huge 11% in the year leading up to January 2023, really reflecting the economic uncertainty caused by the mini budget and the economic crisis. A rise in the cost of living and a drop in disposable income as a result, has meant that thousands have re-considered their finances over the last year. This means putting off getting expensive loans and purchases like mortgages and houses and waiting for the figurative dust to settle. Unsurprisingly, between December and January sales fell by as much as 3% alone.
A lack of interest in purchasing property now has meant that there has been a lack of competition in the market that has previously driven property prices. Whereas previous years have seen 10 people bidding against each other for one property and offering way above asking price to secure the home, people are now finding it more difficult to sell and are cutting the sale price of their property frequently. A friend of mine listed their 1 bedroom flat in London originally for £320,000 in October 2023. The property, which would have been fought over a 18 months ago is still on the market and has been reduced to £280,000 with more reductions expected.
Is Now Actually A Good Time To Buy A Property?
Despite everything that we have just reported on, 2023 might actually be a good year to buy a property. For the simple fact that rates ARE coming down, properties are heading towards the most affordable levels they have been in years, and more schemes and initiatives to help first time buyers from lenders are coming in thick and fast.
We must however stress that we don’t know for definite what will happen with the property market. Although we are very experienced in property, no one can accurately prophesise if rates will go up again or if property prices will drop too low. By this we mean, there is still a possibility that the value of property could drop lower than the value of mortgages on a property and the home owner could find themselves in negative equity. So someone could buy a home for £300,000 with a £270,000 mortgage but the value of the property could drop to £265,000. We think this is unlikely to happen, but is something that should be taken into consideration if you are planning on buying. Always make sure that you speak to a mortgage professional before making any house purchase commitments.
If you or anyone you know needs to discuss anything to do with properties or mortgages, please give our friendly team a call today to see how we can help.
