Home sales stall in stand-off over prices in wake of mortgage spike

The number of real estate transactions in March rose 1 percent compared to February, indicating a “Mexican stalemate” in the real estate market.

There were a total of 89,560 housing transactions in March on a seasonally adjusted basis, according to the latest data from HMRC.

It’s because mortgage rates have fallen slightly. The average five-year fixed deal is back under 5 percent and stands at 4.97 percent, according to Moneyfacts, and the average two-year deal is now 5.26 percent.

Rates peaked in October at an average of 6.65 for a five-year fix and 6.52 for a two-year fix, but there are now a number of deals in the market for less than 4 percent.

At the same time, there are now more than double the mortgage products on the market than at the end of last year.

This is good news for buyers who are still struggling with the rapid rise in mortgage rates at the end of last year, when the Truss government’s mini-budget pushed up borrowing costs sharply.

Graham Cox, of Self Employed Mortgage Hub, said: ‘Mortgage approvals fell off a cliff at the end of last year, about 45 per cent lower than the year before.

“Thus, levels of completed transactions are unlikely to improve much in the near future. In general, there is no doubt that the housing market is flat.

“Buyers are wary of overpaying, and there are still far too many sellers waiting for silly money. With one or two more rate hikes, a Mexican conflict is underway.”

Due to the time it takes to buy a house, we are only now seeing the impact of the budget on the market.

Although the number of transactions increased slightly this month, the figure is 19 percent lower than a year ago.

Ross McMillan, owner of Glasgow-based Blue Fish Mortgage Solutions, said: “The recorded sales, or lack thereof, relating to that period are only now trickling down to the recorded transactions and so it is inevitable that the figures for March this years are significantly lower. on the same month in 2022.

“Clearly there are significant differences in activity between local areas, but overall it seems that buyers and sellers have adapted to the new normal and the higher interest rates that come with it.”

However, there are signs that buyers in some parts of the market are still waiting for a long overdue price drop after years of rapid growth.

At the start of the year, higher mortgage rates combined with stubbornly high inflation led many to predict sharp falls in house prices.

Savills predicted house prices would drop 10 percent over the course of the year and the Office for Budget Responsibility said there would be a 9 percent drop.

Despite the difficult conditions, prices have so far remained resilient.

Paul Neal of Missing Element Mortgage Services, said: “Many people seem to be waiting for prices and interest rates to fall, but overlook the fact that lower interest rates will fuel demand, driving prices back up. In short, the current market is a great time to buy.’

Asking prices for typical starter homes hit a new all-time high of £225,000 in April, according to Rightmove.

However, monthly growth slowed to just 0.2 percent, significantly lower than usual for this time of year, when growth usually averages 1.2 percent.

The average newly listed UK home now has an asking price of £366,247.

New buyers are considered a major driver of the relative stability of the market.

While house prices rose 1.7 percent over the year to April, homes bought by first-time buyers rose 2 percent, demonstrating continued demand.

However, this month’s high inflation rate – 10.1 percent – surprised experts and many now expect the Bank of England to raise its base rate further.

Previously, it was hoped that the March hike would be the last and that the Monetary Policy Committee would opt to hold or even cut interest rates in its next decision.

The rate – which determines the cost of borrowing – is currently at 4.25 percent, the highest level in fourteen years. This adds the risk of mortgage rates rising again, deterring buyers.

In addition, Mr. Cox says as more sellers put their properties on the market, prices could fall rapidly later in the year.

Jeremy Leaf, former RICS residential chairman added: ‘Inflation and falling real incomes remain a concern, resulting in tougher negotiations and protracted sales.’

But others are more optimistic about the rest of the year.

Amit Patel, at brokerage firm Trinity Finance, says if inflation falls as expected later in the year, lenders will be more lenient with their affordability ratings and transaction levels will pick up.

On top of that, brokers feel many buyers have accepted that current rates are the new normal and are unlikely to fall back to the low levels of recent years.

Rhys Schofield, director of Peak Mortgages and Protection, said: ‘We are now in a world where common sense prevails and mortgage holders are more accepting of yet another ‘new normal’ where rates are higher.

“The payment shock is certainly still a very real threat to households, but we cannot escape the fact that people need houses to live in and will have to pay what it costs to continue to do so.”