Agency warns: Liz Truss Budget still affecting the housing market

The head of residential research at a prominent estate agency says the signs look ominous that “the housing market is headed for a steep fall.”

Tom Bill, research chief at Knight Frank, says that mortgage approvals in December fell to their lowest level since 2009, an annual decline in the Nationwide house price index is imminent, and the latest RICS survey showed buyer demand has only been weaker three times in the last decade.

Bill says: “Clearly, the long-awaited crash is underway, right? If you ignored the impact of the mini-Budget and disregarded the anecdotal evidence, it would be a reasonable conclusion. However, while most of us have moved on from last September’s mini-Budget, the hangover is more prolonged for the UK housing market.”

He continues that while the spike in mortgage rates after the Liz Truss/Kwasi Kwarteng mini-Budget has largely reversed, many would-be buyers put their plans on hold until there was more clarity in the market. 

However, there are some signs that this ‘hold’ pattern is ending - but the agency wonders how long that will last. 

Knight Frank data shows that the number of new prospective buyers registering in January across the UK was nine per cent above the five-year average, and the number of offers accepted was 44 per cent higher and sales instructions rose six per cent

Bill asks: “Could this be simply a short-lived rebound following a period in the deep-freeze in the final three months of 2022? It’s true that the amount of financial distress in the system will only increase and the impact of higher mortgage rates will slowly rather than suddenly tighten its grip around buyers and sellers.

“Furthermore, a cost-of-living squeeze that compounds pre-existing affordability constraints will keep a lid on demand and prices. We think UK prices will decline by 10 per cent over the next two years as buyers recalculate their budgets.

“However, you shouldn’t underestimate the motivation levels of a needs-based buyer who has come to terms with the fact that a five-year fixed-rate mortgage is now at its 25-year average of 4.3 per cent. And there are many of them out there. It’s the more discretionary non-cash buyers who are hesitating.”

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