Demand and supply

This month we have seen that buyer demand has fallen to pre-Christmas levels earlier than in recent years, and sellers are starting to offer more significant discounts to secure a buyer for their home. However, according to Zoopla, there isn’t a significant reset in house prices as was anticipated after the mini-budget. Buyers are accepting offers at 3% below the asking price, but the market is transitioning from unsustainable demand to something much more balanced after the spike in mortgage rates in September.

Buyers appear to be waiting on the sidelines to see what will happen with house prices and mortgage rates and to see what the economic situation is regarding jobs and income.

Demand is half the level in November 2021, when mortgage rates were still historically low, and there was less pressure on household finances. This drop in demand has meant that sales volumes are down 28% and are level with pre-pandemic levels.

At the same time that demand levels are falling, sellers are offering more significant discounts to buyers to secure a sale. Figures from Hometrack show that the difference between the first asking price and the agreed sale price is widening. During the pandemic and in the year afterwards, sellers were achieving either the full asking price or offers over. Here in Scotland, this was sometimes as much as 25% in some cases.

But the market is in a period of correction, with the average seller now offering a discount on their property to achieve a sale – especially as they can see interest rates continue to rise.

According to Zoopla, the supply and demand indicators show a rapid slowdown from the extreme market conditions since the pandemic’s start. However, even though higher mortgage rates are reducing, homes coming to the market are fewer, and it is becoming harder to negotiate and hold together over the buying cycle.

Fall-through rates are increasing, and data shows that around 6% of homes formerly sold are returning to the market after the original sale has fallen through.

Are house prices falling?

There is no evidence of an increase in forced sales or a requirement for a significant, double-digit reset in UK house prices next year. Data shows that buyers’ offers need to be between 5% and 7% below the asking price for it to be considered an annual price fall. The discount is expected to widen further as we move to a buyers’ market as opposed to the seller’s market of recent years. The prospects for next year will depend on how willing sellers are to reduce the asking prices in line with what buyers are prepared to pay.

Mortgage rates

The average cost of fixed-rate mortgages has fallen from 5.5% to 4.1% since early October – with actual mortgage rates higher than this. The average fixed-rate mortgage will likely settle between 4.5% and 5% by the middle of next year. In addition, the housing market’s reliance on high LTV value mortgage finance will continue to encourage people to move in 2023. The rise in mortgage rates since September has been the main reason the market has slowed down, but as we move towards 2023, the market looks more positive. A slight fall in house prices by up to 5%, more affordable mortgage rates and a buyer’s market will encourage more people to move next year.

If you are considering selling your home and would like advice on the property or mortgage market, The Mortgage Hub is here to help.