Is buyer demand slowing?

Stephen Cheshire, Director Jackson-Stops Chester writes:

After two years of unprecedented demand brought about by factors none of us could have foreseen a few months before they became a reality, there is now talk of activity in the housing market slowing down. This balancing is as a direct effect of a market that has been overheated in most sectors and now that buyers are being assailed from all sides by talk of a possible recession on the back of exorbitant fuel & energy prices due in part to the conflict in Ukraine, raging inflation and rising interest rates there is a case for a degree of caution moving forward.

However, the reality is that there still appears to be an imbalance between supply and demand with more buyers than there are properties available. Despite the unsettling economic outlook, we continue to experience competitive bidding and strong sales prices which is due in part to the limited supply of new listings but this is now only part of the story. With buyers anticipating further interest rate rises they are anxious to take advantage of low rates and take up favourable mortgage offers which are still valid. The rationale being this is that it is better to pay a premium price today but in so doing secure an advantageous fixed rate mortgage rather than wait to see if property values ease. The justification being that the monthly cost of paying an additional £25,000 or even £50,000 today is likely to prove cheaper than putting off a purchase and then having to fund the entire mortgage in 6-12 months’ time if interest rates continue to rise.

The overheated market will naturally slow down as monthly disposable incomes come under pressure and there is evidence that mortgage valuers are not supporting inflated sale prices as lenders rightly see that the rise in property values in recent years is not sustainable. Indeed, the removal of riskier mortgage products and more stringent conditions attaching to mortgage offers including a requirement for larger deposits will all serve to reduce market momentum.

As we enter the Winter months the prediction is that activity in the housing market will slow down with reduced transaction levels but for all parties whether they be buyers or sellers the question that is being posed is will property values actually fall.

Our prediction is that the coming 6 months will be a transitional period as everyone digests the full impact of inflation, higher energy prices, rising interest rates and of course the hostilities in Ukraine. However, on a positive note the UK housing market has always proven to be very resilient not least of all because in the long to medium term bricks and mortar have always been a sound investment and presently potentially safer than many other investment options with the value of cash in the bank going backwards during inflationary times.

By the Spring of next year which traditionally marks the start of the selling season for the country house market we expect there will be greater clarity as to what is happening in the UK and wider world economies but with inflation forecast to be back to 2% by the middle of 2024, we believe interest rates are unlikely to exceed 3% in the short term which still means a historic low when looking back over the past 25 years. As such borrowing money will still be relatively affordable and this should hopefully ensure that residential property values remain stable even if the level of activity seen in recent years drops off.