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Is The Housing Market About To Drop 30%?

Just half a year ago, the housing market was on fire. People were buying after single viewings, and prices were at an all-time high. The heat had defintely eased off before the mini-budget. However, Nationwide is now warning that the housing market could drop up to 30%.

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Demand for homes has fallen by a fifth since September 23rd. That was the date former Chancellor of the Exchequer Kwasi Kwarteng’s stood up in Westminister to deliver his doomed fiscal plan. In a short space of time the moved moved from being a seller’s to a buyer’s. Just months ago, estate agents were confidently talking up values to home owners. Now agents are urging sellers to ‘be realistic’. 

In this article, we will talk about what is happening in the housing market and what buyers and sellers should expect.

The impact of the mini budget

Even before the mini-budget, mortgage rates were set to rise 4-5%. The cost of living crisis is also severely affecting people. Fewer are keen to take the plunge and buy their own homes. And even if they are confident enough to do so, affordability is often proving an issue. On top of inflation, the mini-budget effectively added an extra 1% to mortgage rates, which have now settled at around 6%.

For these reasons and maybe more, there has been a 25-30% decrease in people’s ability to buy property. As a result, there have also been widespread reports of mortgage products being pulled as a result of rapidly changing borrowing costs for providers. 

Before, everyone wanted to buy a new home. Now, people aren’t so sure.

Property website Zoopla reported that enquiries about homes for sale have dropped by about a fifth in just two weeks.

The Times reports that house sellers started accepting less than the asking price for the first time in 2022. Many see this as a sign that buyers are getting ‘cold feet’, and that the market is headed figuratively into a winter. 

The reduction in demand isn’t just in London, where prices are highest. Figures tell of a fall in demand across the whole of the UK. The number of new sales has dropped by 15% over just the last week. 

Buyers that haven’t already locked in cheap mortgages, or are increasingly worried about the landscape of the property market or the economy, are likely to act cautiously. 

The market demand is still above 2019 levels

Many people still have an interest in buying or selling a home but are put off by the increasingly negative coverage of the market. Many commentators have also pointed out that the drop in demand, although considerable, isn’t as dramatic as many people think. 

Buyer demand was at an all-time high during the pandemic, so demand right now is only weaker compared to that. Housing demand is still above 2019 levels. 

As demand drops, so do asking prices

In any market or economy with black clouds appearing, there is an increased risk that it becomes a self-fulfilling prophecy. As there is nationwide coverage of prices falling, more people will opt to wait out until the market sees greener pastures. This further reduces demand and prevents people from selling, causing the market to decline further. 

The recent fall in demand and spike in buyers requesting price reductions is evidence to this. Zoopla stated that 8% of homes for sale had reduced the asking price by more than 5% in the last month. 

Is buying a home a bad financial investment in 2022 Britain?

Martin Stewart, founder of the mortgage broker London Money, makes a good point, “The brakes have gone on the purchase market, and you can’t blame people. Would you buy a financial asset tomorrow if you knew it was soon going to be worth 20 per cent less?”.

Mortgage brokers have mainly reported that buyers halfway through the process are generally going through with purchases. This means that property chains aren’t expected to collapse, as is the case when the property market is very bad. However, buyers are reporting that when sellers pull out, they have to pay more money for their next mortgage offer. 

This is creating instability in the market. Most reports say that among property developers, there is an agreement that now is not a good time to make a big investment. However, long term investors in the landlord market might be sensing an opportunity.

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