UK housing demand has almost halved in the wake of Liz Truss’ “mini” Budget in September, as house hunters react to higher mortgage rates by scrapping plans to buy and turning to the rental market instead.
According to property portal Zoopla, demand is down 44 per cent since the day of the “mini” budget, with the biggest falls in the south east of England and the West Midlands. Zoopla defines demand as homebuyers contacting an agent directly about a specific home for sale, rather than browsing.
“It’s almost as if the housing market has moved into Christmas mode eight weeks early,” said Richard Donnell, CEO of Zoopla.
The tax cut proposals put forward by the former prime minister and her chancellor, Kwasi Kwarteng, wreaked havoc on the mortgage market, sending interest rates up a percentage point or more in just over a week and forcing lenders to withdraw products. That shut many buyers out of the market.
Falling demand has increased expectations that prices will fall next year, and the Office for Budget Responsibility has now predicted a fall of 9 percent.
Zoopla’s house price index recorded a 7.8 per cent increase in the year to the end of October, but “there is a lot of momentum coming out of house price growth and the indices always lag”, Mr Donnell said.
Sellers around the UK are already offering discounts on asking prices – in south-east England around a third of homes for sale have had their original numbers reduced, Zoopla said.
It is a clear sign that the market is cooling down after being hot throughout the pandemic.
Government support for the housing market, a desire for more space and tired ties to central offices contributed to a frenzy of activity during the pandemic period. Property sales and prices rose unexpectedly.
– The housing market is about to go from an unsustainably strong market [during the pandemic] to a more balanced one, albeit with affordability challenges for homebuyers most dependent on mortgages and a weaker economic outlook for 2023,” according to Zoopla.
Borrowing costs have increased throughout the year, fueled by the Bank of England’s decision to raise interest rates several times to combat rising inflation.
The rate of increase was accelerated by the “mini” budget. Costs have fallen in recent weeks as Truss and Kwarteng’s proposals have been scrapped, but remain close to 6 per cent.
A year ago, interest rates of less than 2 percent were widely available, but borrowing costs are not expected to fall back to that level in the foreseeable future.
Higher prices have derailed buyers across the country, causing deals to collapse and forcing people who have saved deposits to turn to the rental market, where increased demand is pushing prices up quickly.
According to property website Rightmove, rental inquiries are increasing by a quarter, or by around 100,000, year on year, with estate agents handling 36 inquiries per property on average.
“It’s extremely frustrating for so many people in the rental market right now, with demand so high,” said Christian Balshen, of Rightmove’s lettings team.
– The number of first-time buyers who have now had to turn to the rental market worsens the situation further. We are seeing a few more properties coming on the market, but nowhere near enough to meet the demand.”