Should you wait until after Christmas to buy a house?
As buying chains break, everything is taking longer to sell and prices are starting to fall
Winter has arrived with a cold blast in the property market with the news that the average house price dropped by 2.3 per cent (£6,827) last month — the largest decrease since October 2008 and the third consecutive monthly fall, according to Halifax.
The enormous price increases of the pandemic — 19 per cent (£46,403) since March 2020 — have certainly vanished, and while everyone expected a slow chill to descend, being plunged into the deep freeze wasn’t on the agenda. But both buyers and sellers have taken fright since September’s mini-budget pushed fixed mortgage rates up by two percentage points.
“While mortgage rates have fallen back somewhat in recent weeks, they remain too high for demand to recover and prices to bottom out any time soon,” according to Andrew Wishart, the senior property economist at the Capital Economics consultancy. “The 2022-23 house price correction has begun far more abruptly than that in 1989-90 or 2007-08, reflecting the sheer scale and pace of the mortgage rate shock.”
In the wake of the mini-budget more than 1,000 fixed-rate mortgages were withdrawn by lenders as rates rose — tipping 6 per cent for a two-year or five-year fixed rate. Since then some lenders have reduced rates slightly, yet given that it is expected that the Bank of England will raise interest rates from 3 per cent to 4.5 per cent over the coming months, it’s no wonder buyers are hunkering down.
“Some potential home moves have been paused as homebuyers feel increased pressure on affordability, and industry data continues to suggest that many buyers and sellers are taking stock while the market continues to stabilise,” says Kim Kinnaird, director of Halifax Mortgages.
Wishart adds: “Some combination of lower prices, lower mortgage rates and higher pay is needed to make buying a house more affordable again, and to allow demand to recover and prices to bottom out. The sharp fall in house prices in November raises the risk house prices adjust before there is a material drop back in mortgage
Those surveyors and estate agents interviewed for the Rics residential survey published this week have also noticed the change in temperature, with buyer demand, agreed sales and new seller instructions all down. Colin Townsend from John Goodwin agency in Malvern, Worcestershire, summed it up: “Definitely signs that the troubles in the economy are now impacting sales in the housing market. Many more chains are breaking, everything is taking longer to sell and prices are starting to fall. More challenging times lie ahead.”
The time it takes to sell has increased by 25 days in the past year in “middle-income areas”, according to Hamptons estate agency, with sellers and buyers locked in a stand-off as sellers, and some estate agents, fail to readjust to the lower demand and the negotiating power of buyers.
“People are now making offers as low as possible to get the best deal. Unfortunately, I can’t see much activity in December. However, estate agents will need to polish their negotiating skills for January as many buyers will offer 15 per cent lower than the asking price. By then sellers will be seriously re-evaluating how much their house is worth in the market,” says Zaid Patel, a director at Highcastle Estates, an estate agency based in London.
The true extent of the damage may not be apparent until March, when traditionally the spring market begins. Tom Bill, head of residential research at Knight Frank, says: “For some buyers, the clock is ticking because they are sitting on time-limited mortgage offers that predate the mini-budget. They will want to move as quickly as possible, and sellers may find the scope for price negotiations is more limited. In other instances, the complete reverse is true. While demand hasn’t disappeared, offers are not necessarily as forthcoming as they were six months ago due to the volatility in the mortgage market. This mixed picture is further confused by the arrival of the Christmas break.”
He adds: “I expect more clarity around the trajectory for house prices from March next year. The spring selling season will shine a more intense spotlight on the housing market when mortgage rates will have settled and the price expectations of sellers will be fully put to the test. That could be a ‘wake up and smell the coffee’ moment.”
Samuel Mather-Holgate of Mather & Murray Financial, a brokerage, adds: “Transaction levels will dry up faster than a bar during the England v France match this weekend as the next six months see a battle of the wills between sellers trying to get what they think their property is worth and buyers realising a catastrophic crash is on the horizon. By spring we should see prices 20 per cent lower and [mortgage] rates starting to come down. Then it will be a buyers’ market as the doors reopen to trade.”
This five-bedroom cottage in Sturminster Newton, Dorset, is on sale for £975,000 with Savills
So it would make sense for sellers to try and sell now, and for buyers to wait until at least the spring. Until then the picture is more mixed than the headlines might suggest, with places slowing down at different rates. For instance, according to the Halifax data, house prices continue to rise in the North East of England where annual house price inflation is 10.5 per cent. In fact, in 92 per cent of British postcodes it is still officially a sellers’ market, and in 50 per cent of locations an extreme one. Only 177 postcodes (8 per cent) are now officially buyers’ markets, according to data on buyer demand and sales subject to contract from PropCast, property data analysts.
There are some locations that have been hot sellers’ markets for the past year and remain so: “Bristol is the greatest place on earth according to the data, and it is still going very strong,” says Gavin Brazg, the head of PropCast. Meanwhile, other neighbourhoods have remained buyers’ markets throughout the pandemic and beyond, including prime southwest London hotspots such as Kensington, Chelsea and
Those that have flipped from sellers’ to buyers’ markets already include some of locations that were the most desirable and flew highest during the pandemic — including much of Wales and the South West. Take the postcode TQ5, Brixham, on the south Devon coast: it was an extreme sellers’ market in 2021 as buyers rushed to coastal and country hotspots, but by September this year sentiment had started to turn and demand cool; now it is definitely a buyers’ market.
Almost uniformally, economist and property price forecasters expect house prices to continue falling — the question is, by how far and for how long? “Increasingly, our forecast of a 12 per cent peak-to-trough fall in house prices feels like it is towards the more optimistic end of the spectrum of possible outcomes,” Wishart says. Last month Nationwide’s chief financial officer Chris Rhodes told MPs his “worst-case” scenario was a 30 per cent drop in prices, with an 8 per cent to 10 per cent fall more likely. It could be a long, cold winter for some people.
