The rise in mortgage rates and falling real incomes are finally starting have a downward effect on house prices, and it seems the findings of the RICS Residential Market Survey for October are a sign of things to come.
Last month new buyer enquiries fell for a sixth successive month, while a net -2% saw house prices moderate in the month.
In some regions most agents reported falls, like in East Anglia (-31%) and the South East of England (-16%).
Responding, economists Samuel Tombs and Gabriella Dickens said: “There now is clear evidence that house prices are succumbing to the staggering rise in mortgage rates and squeeze on real incomes.
“The rise in mortgage rates has simply been too big for the market to defy gravity indefinitely. BoE data show that the average quoted rate for a two-year fixed-rate mortgage with a 75% LTV ratio jumped to 6.01% in October, from 4.17% in September, well over triple the rate in January, 1.64%.
“And while risk-free rates have fallen since October, data from Moneyfacts show that the decline in mortgage rates has fallen by less than 20bp since the October peak. Banks have increased spreads, due to the elevated risk of lending.”
The pair, representing Pantheon Macroeconomics, reckon prices will fall by 8% next year, reversing one third of the increase witnessed since the pandemic.
Emma Cox, managing director of Real Estate at Shawbrook, speculated on how the upcoming Autumn Statement on 17 November could impact housing supply and the economy.
She said: “High inflation and a surge in interest rates has created a tough backdrop for the property market. Political and economic uncertainty have also undoubtedly impacted confidence within the sector as well, as buyers and sellers struggle to get to grips with the rapidly evolving market. Labour and material shortages are also playing a role in slowing growth.
“Looking ahead buyers, sellers and tenants will be looking for more action to alleviate cost of living concerns. All eyes will therefore be on this month’s Autumn budget – with hopes that further clarity is provided from the government, not only on how it will address current issues, but additionally longer-term supply concerns.”
Matthew Thompson, head of sales at Chestertons, implied that London may be insulated from the worst of the house price falls
He said: “We are not currently seeing or expecting a substantial drop-off in demand from buyers or the rapid fall in prices that other UK-wide figures are suggesting.
“One of the unique factors of the London market is the number of cash buyers, who are partly insulated from the current high mortgage rates. Another factor is London’s enduring popularity with overseas buyers, who are able to benefit from the relative weakness of Sterling against the US Dollar.”