Home sales steady: but looming storm set to sink the market

Property sales (non-seasonally adjusted) were 110,850 – up 29% in the year to October. This needs to be seen in the context of the fact that September 2021 saw a massive rush for the end of the stamp duty holiday, so October 2021 saw a major lull. Sales are actually down 3% from the previous month. Sales are steady, and very slightly above pre-pandemic levels (3.5% above September 2019).

HMRC published monthly property sales for October: Monthly property transactions completed in the UK with value of £40,000 or above – GOV.UK (www.gov.uk)

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Home completions sailed a steady course through October, but the looming storm is likely to sink sales. October saw carnage unleashed in the mortgage market, but buyers, with much lower mortgages already in their back pocket, continued to plough on. It means October sales were still slightly above pre-pandemic levels, but this is the relative calm before the storm.

Sales completing in October were largely agreed around July, when demand had been falling for a couple of months, as mortgage rates started to climb and cooled our passion for property. The average two-year fixed rate was rising faster than any time since Moneyfacts records began in 2007 – with the two-year rate up from 3.61% to 3.74% in a month. Of course, at that point, we had no idea of the tempest that was about to hit the mortgage market, that would make this look like a gentle undulation.

In October – once the mini-budget had ridden roughshod over the mortgage market – some buyers who were part of the way through the process will have got cold feet, as they worried about the future of house prices and mortgage rates. However, others will have carried on regardless, safe in the knowledge that the mortgage they had agreed was as good as it was going to get for a while – and that the looming recession could bring rates down by the time it came for them to secure their next mortgage deal.

The pain set to come

It’s those who had yet to dip their toe into the market who have been sent running for the hills. We know buyer demand continued to fall, and that in the aftermath of the mini-budget in September and October, it fell through the floor. The RICS Residential Market Report showed house price growth ground to a halt, sales plummeted, and estate agents weren’t confident they would pick up any time soon. It’s not a huge shock. Buyers faced the horror of mortgage rates spiking overnight, and while the average two-year fix has since come down to 6.21%, according to Moneyfacts, it’s still a different world for buyers.

Meanwhile, they have the spectre of falling house prices to consider. The Office for Budget Responsibility is more optimistic about the coming recession than the Bank of England, but still expects house prices to fall 9% between now and autumn 2024. It means buyers face the prospect of spending more than they can afford on a property that will get less and less valuable over the next two years. Unless they desperately need to move right now, it’s not a tempting prospect.

It means that over the next two months, property sales figures will head south, and not just for the winter. We could see sluggish sales settle in for the duration of the recession.”