Six recent trends in the property sales market

A few months into 2023 and the data is showing a mixed view of the property sales market. Interest rates are expected to remain high in the near future, defaults are on the up, and some instability is predicted to remain - yet there is a sense of optimism in buyer sentiment. 

1. Mortgage costs to return to pre-pandemic levels - but not in the immediate future

The International Monetary Fund (IMF) has shared that "recent increases in real interest rates are likely to be temporary".

However, any drop in interest rates is unlikely to take place in the near future. This first depends on inflation falling before the base rate can be lowered to ease pressures on mortgage holders.

The Bank of England is predicted to cut interest rates at Christmas 2023 - the first rate reduction since the start of the pandemic.

Although the base rate isn't the only factor influencing the interest rates that banks then charge, it's likely that mortgage costs will remain high into at least 2024.

2. Rents may continue to rise to reflect increased mortgage costs

In the short term, Barrows and Forrester has analysed its buy-to-let mortgage costs from December 2021 and seen a 20.1% increase in the average monthly cost for a monthly mortgage repayment since then.

However, some tenants have yet to be hit with a correlating rental price increase. Any tenants soon coming to the end of a fixed-term contract may see a jump in their rents upon renewing, as landlords look to balance their escalating costs with their income.

3. Defaults on mortgages are on the up

Fourteen percent of banks and building societies recently surveyed have said that more households defaulted on their secured loans - including mortgages - in Q1 2023 compared to the previous quarter.

That's the highest rate seen since the second quarter of 2009 - barring the first quarter of 2021 when Covid-19 restrictions were in place.

Those surveyed also predict defaults to continue to grow, while inflation is high. “The uptick in defaults [. . .] underlines the daily struggle for many households to keep on top of rising prices,” said Myron Jobson, Senior Personal Finance Analyst at Interactive Investor.

4. Auctions on the rise - particularly for buy-to-let properties

With more defaults on mortgages, the hunt for fast sales through auction may spike, predicts My Auction.

This trend may become more evident for buy-to-let landlords. The auction house has already seen buy-to-let landlords make up 38% of all auction sales in recent months.

The Head of Residential Conveyancing at Osbornes Law, Simon Nosworthy, shares that auctions aren't as lucrative as they once were, as property buyers have recognised its potential for bargains.

However, property investors may well find some gems to supplement the market at a time when supply and demand for rental properties in particular is low. 

5. Mortgage approvals and cancellations have dipped, creating some instability

Bank of England data shows that there was an 18.4% fall in the number of monthly mortgages approved in 2022 versus 2021. However, mortgage cancellations also started to drop, sitting at 13.8% fewer cancellations overall in 2022 than in 2021.

Nicholas Christofi, Managing Director of Sirius Property Finance, shares that this shows a higher level of mortgage market instability, with the proportion of cancellations to approvals creeping up to its "highest level in the last decade".

He says that this is caused by the higher costs of borrowing coupled with a "reluctance that many have had in following through with a mortgage offer as interest rates have risen".

6. Buying sentiment remains tentatively optimistic

Despite these less-than-positive statistics, there is cause for some optimism.

After a slow-down of sales following the mini-budget, Rightmove's data suggests that property sales agreed in March have grown to the levels seen in March 2019 - after falling to 21% behind 2019's sales in January.

“Supply, demand and sales volumes are gradually recovering as buyers and sellers come to terms with higher mortgage rates but prices are likely to fall by a few percent as more distress enters the system," says Tom Bill, head of UK residential research at Knight Frank.

Google's search results reflect this more positive view in recent months, with searches for Rightmove increasing by 23% in January versus November 2022 - and a 49% leap for Zoopla.

OnTheMarket's research shows similar optimism through a new survey in March. Seventy-one percent of UK buyers said they were confident that they would purchase a property within the coming three months. This is an increase on the 69% that were confident in February.