Property Talk: Is the property market seeing a soft landing — or a false dawn?

Are you a would-be buyer sitting on the sidelines? A buyer negotiating over price? A seller weighing up your options? Or someone with a fleeting interest in what’s happening in the housing market? Whatever your circumstances, there’s a lot to digest right now.

Let’s start with house prices in January. Halifax shows that house prices remained stable at 0% last month, while Nationwide reveals that they dropped 0.6%. It comes after both lenders reported monthly house price falls at the end of last year.

Elsewhere, Royal Institution of Chartered Surveyors (RICS) says that buyer demand, agreed sales, new sales instructions and house prices in January all remain on a downward trend. The sentiment survey shows the most widespread fall in house prices since 2009, as covered here in the FT.

Simon Rubinsohn, chief economist at RICS, cautions against jumping to conclusions too quickly. ‘Although some respondents have noted a little more interest in the housing market as the new year got underway, the overall tone of the feedback still remains subdued,’ he said, ‘which is not altogether surprising given the jump in mortgage rates since the autumn.’

"Stress tests on mortgages are becoming harder to pass... which is disproportionately felt by younger and poorer people"

It seems clear that economic headwinds have taken their toll on the housing market. Yet there are notes of optimism. Mortgage rates have stabilised, pre-existing buyers are ‘cautiously’ reactivating plans and new buyers are coming to terms with the ‘new normal’ in the lending market, according to Tom Bill, head of UK residential research at Knight Frank.

He adds: ‘Some of the house price growth that took place during the pandemic will unwind but as the shock of the mini-Budget fades, demand is proving more resilient than expected.’

Buyer demand in the first few weeks of the year has rebounded to pre-pandemic levels and is in line with 2018 - although it is well below levels seen in recent years, says Zoopla.

Meanwhile, on the mortgage front, fixed-rate pricing is continuing to drop from the highs seen last autumn despite the Bank of England unveiling a succession of rate rises.

‘While the days of sub-1% fixes are long gone, rates are beginning to look more palatable for borrowers, which should be a welcome boost for the housing market and encourage more to take the plunge,’ explains Mark Harris, chief executive of mortgage broker SPF Private Clients.

‘The markets have reacted favourably to the Prime Minister's inflation-cutting pledge and while there may be further rate rises to come, base rate appears to be nearing its peak, which will be a comfort to borrowers.’

This week, five-year fixed-rate mortgages fell below 4% for the first time since last autumn, according to media reports.

Yet even at sub-4% mortgage rates are considerably higher than those we have become accustomed to in recent years, points out Marcus Dixon, director of UK residential research at JLL, commenting on last week’s bank rate increase.

There is an argument to suggest that factors such as settling rates and lower house prices could allow some would-be buyers to get onto or up the housing ladder. But as budgets are squeezed, saving for a deposit remains a challenge.

Avinav Nigam, co-founder of real estate investment platform, IMMO, argues: ‘Higher borrowing costs are dampening demand, and therefore house price growth. From a price-income ratio, this might look like good news on the affordability of homes.

‘However, it’s the opposite because at the same time, stress tests on mortgages are becoming harder to pass. The impact of this is disproportionately felt by typically younger and poorer people who are renting and aspire to home ownership.’

So are we seeing something of a false dawn - or is a soft landing possible? It’s early days, of course. The resilience of house prices and sales volumes will be put to the test in the spring when larger numbers of transactions take place, says Bill.

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