Behind the latest headline figures are some key signs of a resilient housing market, and investors are continuing to hone in on the opportunities available.
Various house price indices have revealed slightly different pictures of the UK housing market, with Zoopla finding that prices have risen by 0.1% over the past year, while Nationwide recorded negative annual house price growth of -5.3%.
Each index is calculated differently, with Nationwide using its mortgage data on owner-occupied properties, while Zoopla calculates its figures based on the asking prices on the portal. However, both have found a dip in transaction levels in the UK property market, which is much as expected in a climate of rising interest rates.
However, cash buyers in particular have actually risen in number, being up by 2% in the first half of 2023 compared to 2019 levels, demonstrating that there is still a high level of appetite from investors in the property market who are able to push ahead without a mortgage.
It is the mortgaged buyer market that has seen a dip in transactions, with a 33% reduction in the first half of 2023 compared with 2023 for home movers, around a 25% fall for first-time buyers, and 30% for buy-to-let investors.
Some investors waiting for rate falls
According to James Green, investment director at deVere Group, although property transaction levels have certainly depleted so far this year, the expectation is that they will rebound as early as the first quarter of 2024 once interest rates have begun to fall.
“Now that inflation is gradually dropping back from generational highs, the central bank will be more likely to be persuaded to pause its rate hike agenda, which will boost the UK’s housing market,” he said. “As rates begin to fall, there will be some decent property investment opportunities in the UK that investors will be keen to seize.”
He also predicts, like many others, that interest rates will “peak at 5.5%” when the Monetary Policy Committee meet again this month. While inflation eased to 6.8% in July from its high point of 11.1% in October 2022, Green points out it is still a way off the Bank of England’s 2% target.
However, the fact that there has been a rise in cash buyers indicates that many investors are not, in fact, waiting, but are continuing to invest in the market by finding the opportunities that are available. This might include negotiating harder on price, or buying in a cheaper area, such as outside London.
Low unemployment and wage rises boosting the market
Despite the obvious difficulties for homeowners, first-time buyers and investors due to higher mortgage costs, there are positive factors at play reducing the worst effects of the rise. As Robert Gardner, chief economist at Nationwide, points out, unemployment is low and expected to remain below 5%.
This, combined with the high proportion of people on fixed rates, means that “the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs”, with today’s stricter affordability testing ensuring fewer people end up in arrears or negative equity.
He adds: “While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”
As Zoopla’s house price index report also points out, average wages have risen by 7% over the past year, which goes some way towards offsetting rising mortgage costs.
It adds: “With house prices falling modestly, the difference between house prices and earnings is narrowing. Affordability in this sense looks set to improve by 9-10% over 2023.
“As a result, the UK house price to earnings ratio will be 6.3x by the end of the year. This makes buying a house as affordable as the average over the last 20 years.”