I’ve had mixed messages this year from people working on the ground in the property market and from the statistics.
The figures suggest that, unless you are in the prime market – which in some areas could mean properties priced above £500,000 – the market is still good, or at least performing broadly in line with its averages. Prices aren’t typically running away with themselves, but we are still on target to sell around 1.2 million homes.
As Chris Watkin and TwentyEA’s data point out, that’s more than we sold in some recent years.
But some companies have told me that “it’s dire” out there. I’ve also been working with sellers who would normally have little trouble selling, but are having to make substantial price cuts to secure a buyer, especially one that can proceed.
With another Budget and memories of how rumours ahead of last year’s Budget caused the market to falter, plus a faltering economy, are the statistics and these difficult experiences on the ground about to converge?
We’ll look at the property statistics in more detail as usual, but if the market takes a turn for the worse, the economic pressures caused by the continuing Iran/US war and the prolonged cost of living and doing business crisis are likely to be behind it.
What’s happening in the UK economy that could hit the property market?
The big issue confronting us now is the huge increase in diesel prices at the pump, with prices regularly above £2 per litre. Ouch!
The UK is particularly exposed because we tend to import our diesel. Supplies are now incredibly low because of ongoing problems with Russian supply and supplies from the Middle East via the Strait of Hormuz.
Initially, the price spike hits those on the road. But it is now feeding into the cost of anything that needs transporting, critically food.
With diesel prices remaining high for so long, the pressure on inflation is increasing. August inflation rose to 3.1% and, according to the Bank of England, is likely to reach 4% next year. (Source: David Smith, Sunday Times economist.)
Markets are now pricing in an interest rate rise in November.”
As a result, markets are now pricing in an interest rate rise in November, probably from the current 3.75% to 4%, to help limit the effects of higher inflation.
Will an interest rate rise to 4% hit the property market?
I think the key issue, if rates reach 4%, will be the effect on people’s confidence when deciding whether to buy.
This matters because we are seeing more people selling than we have for a long time. In my own local market, it’s the more expensive properties that are up for sale, suggesting that more owners are looking to trade down.
That shouldn’t be a huge surprise. We have an ageing population and a prolonged cost of living crisis. Those in larger homes may be able to make life easier by moving to a smaller property and using some of their equity to supplement their pensions or retire a little earlier.
Over the next few months, we need to watch what happens to demand, particularly if interest rates rise further, as fixed mortgage rates already have.
This could lead to some sellers agreeing to quite big discounts to enable them to move on.”
Will nervousness reduce buyer demand while sellers remain on the market, hoping to secure a sale before Christmas? If so, this could lead to some sellers agreeing to quite big discounts to enable them to move on.
The next few weeks are likely to be critical in showing how these economic pressures feed into the property market. We know they have had less impact than in the past. But combined with higher interest rates and the prolonged cost of living and doing business crisis, they are likely to reduce buyer numbers just when we need more of them.
