According to Zoopla, the number of completed sales will fall to its lowest level since 2012. It is a fact. According to the property listings website Zoopla, this year’s home sales are expected to be 20% lower than in 2022. This means that the number of completed sales will fall to its lowest level since 2012, when Britain was still recovering from the global financial crisis.
According to new data from the Bank of England, mortgage approvals have also decreased by 30%. Therefore, not only are fewer home sales closing, but also fewer mortgages are being granted to buy homes.
Although wages are beginning to rise, house prices remain extremely high, and rising interest rates – average two- and five-year fixes are still above 6 percent – have a negative impact on affordability, requiring buyers to have larger mortgages, larger deposits, and higher incomes.
This should not come as a surprise. It has been possible since Liz Truss and Kwasi Kwarteng’s disastrous “mini-Budget“
Overall, the most recent data suggests that the impact of the Bank of England’s deliberate decision to raise mortgage rates in an effort to tame high inflation is now being felt in the housing market.
This slowdown in the housing market may not be unexpected, but it has serious repercussions for those who wish to buy or relocate, as well as for homebuilders.
This year began with a total collapse in off-plan sales of newly constructed homes, which has hit homebuilders where it hurts – their bottom line.
I have heard that builders are unable to sell their expensive new homes. In fact, adjacent to my building in east London is a brand-new, gleaming apartment complex where no units have sold despite being on the market for several months. A few years ago, they would have been purchased prior to completion.
A few weeks ago, the share prices of major homebuilders declined after Crest Nicholson projected a profit of £50 million for the current fiscal year, compared to £74 million in June. Consequently, their stock price plummeted 10%.
Taylor Wimpey fell 4% on the FTSE 100 as a result of the warning, while Persimmon, Berkley, and Barratt all declined by more than 2%.
The truth is that the housing market has not yet seen its worst days. It takes time for increased interest rates to affect sales. We are now observing the earliest indications of their effect.
Currently, home prices are relatively stable. The much-dreaded market crash that was anticipated a few months ago did not occur.
The truth is, however, that the full impact of this new economic context will not be apparent until the first or second quarter of the following year.
A housing market slowdown could be an early indicator of an impending recession. Remember that the last time home sales were this low, in 2012, the United Kingdom was in the midst of a double-dip recession.
This is a likely outcome, given that the Bank of England is likely to raise interest rates again due to persistent inflation and wage growth.
The housing market is a leading indicator for the rest of the economy, so the government will undoubtedly pay close attention.
As in 2012, they are considering a rescue package for housebuilders and the housing market in their upcoming Autumn Statement. The concept of Help to Buy 2.0 has already been leaked, and the Treasury will devise methods to stimulate the housing market to avert a crisis for house prices and housebuilders.
What occurs next depends on the recommendations made by the Whitehall policy teams. But, any housing market rescue plan that does materialize must be weighed against the total absence of assistance for those who are struggling to afford rising mortgage payments and, of course, for private renters who are struggling with historically high rents while their state support remains frozen at 2019/20 levels.
