Real Estate

UK Housing Market Faces August Slump

UK Housing Market Faces August Slump

The housing market here in the UK has seen a substantial drop in property asking prices in August 2023; in fact, it is the most significant decline for the month of August since 2018.

More than double the drop

In August 2023, the average house asking price dropped by 1.9%. Traditionally, August sees a drop in asking prices due to things like vacationing, whereby many postpone decisions on moving. But this August, the drop is more than double. The 1.9% represents a decrease on the average £364,895 asking price of £7,012.

Times still remain turbulent, with the cost of living remaining stubbornly high, and the significant increases in mortgage rates, taking them in July 2023 to a 15-year high. Yes, new mortgage offers have improved a little – witness the 5-year fixed rate dropping 0.27% over the last three weeks from 6.08% to 5.81%, but the market is still, nonetheless, depressed.

As a result, sellers are reducing their asking prices in order to try and stimulate buyer interest amid the ongoing challenges.

According to estate agents, Rightmove, sales agreements are down by 15% in 2019, a clear indicator that many people are deciding to put their moving plans on the back burner.

The first-time buyers’ market, too, has seen a decline, albeit smaller at 10%. This decline is in part down to the 12% increase in average rent prices, which is influencing some people to reconsider their options and think about buying property rather than renting one.

With a 1% drop in asking prices over the same period last year, the first-time buyer market is holding up a little better, thanks somewhat to the substantial increase in rent prices.

As a nation, the prospect of home ownership remains a desirable goal, and it is still one of the major forms of investment. But with rental prices at an all-time high, coupled with high inflation and mortgage rates, the resultant fall in activity is not good news for investors contemplating entering the buy-to-let sector.

In the short term, the goal of investing in property is fraught with problems. The possibility of getting into a negative equity situation, the difficulty of getting a deposit together and securing a mortgage, plus lower yields from renting, are making people think twice.

The fact of the matter is that although rents have been rising steeply over the past 12 months, according to the ONS, the rise was only 5.3%. Bearing in mind that with inflation running around 7% and with salary increases at 8%, when measured, rental prices are therefore slightly below what they were one year ago, making rents more affordable in terms of people’s income.

It is a generalisation as there are hotspots around the country, such as London and some university towns, where supply is struggling to keep up with demand.

However, for many people who are renting, life is becoming a little more affordable. In addition, the recent reforms introduced by the UK government give tenants greater security of tenure. Also, the current environmental standards mean that properties should be in better condition. But while these reforms bode well for tenants, they do pose additional problems for buy-to-let investors.

Whereas tenants can, if necessary, terminate their agreements relatively easily, in the current climate, property owners usually can’t terminate their mortgages without selling, which, given the current state of the market, is not so easy without potentially making a loss.

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