Home sales and purchases fell by a quarter in the year to April, official figures show, as higher mortgage rates continue to hit buyers
- HMRC figures also show an 8% drop between the months of March and April
- Higher mortgage rates have made it more expensive to get up a ladder or move house
Housing market transactions plummeted in April, falling by a quarter year-on-year as rising mortgage rates undermined consumer confidence.
According to HMRC’s seasonally adjusted figures, house purchases and sales were down 25 per cent compared to the previous year, at 82,120. It was also down 8 percent from March 2023.
March saw a spike in activity due to an increased number of working days compared to April, and the deadline for buying a house with the government’s stock loan assistance scheme.
Down: The number of people buying and selling homes is down 25% year-on-year
Between January and March 2023, housing transactions were slightly below pre-coronavirus levels, with a total of 270,000 transactions compared to 283,540 in 2020.
Chris Druce, senior research analyst at Knight Frank, said: ‘An improving economic outlook and a solid job market have supported buyer sentiment in recent months and created an active spring sales market after the mini-Budget knocked the sector off track last year.
“However, the cost of a mortgage is significantly higher than it was a year and a half ago, and this year there will be more pain in the system as people’s fixed-rate mortgages come up for renewal.
“With expectations of further interest rate hikes ahead of last week’s inflation data, and an increase in supply, we believe property prices will fall by a few percent this year.”
Mortgage rates first started rising in December 2021, when the Bank of England began raising its base rate to counter rising inflation.
However, this gained momentum after the mini budget at the end of September. The pound tumbled after the then Chancellor, Kwasi Kwarteng, announced a wave of unfunded tax cuts that confused bond markets.
After falling since early spring this year, mortgage rates have risen over the past week as lenders react to higher-than-expected inflation and forecasts of further base rate hikes.
Mortgage rates have leveled off, but are expected to rise again in response to another Bank of England rate hike
According to Moneyfacts, the average two-year mortgage rate in April was 5.35 percent, while the average five-year mortgage rate was 5.05 percent.
This is more than 2.86 percent and 3.01 percent in April last year.
On a £200,000 fixed mortgage over 25 years with a two-year term, the change in rates would push monthly payments up from £934 last year to £1,210 now. It works out to an extra £3,313 per year.
Currently, the average two-year fixed rate is 5.45 percent and the five-year average fixed rate is 5.12 percent.
Iain McKenzie, chief executive of the Guild of Property Professionals, said: ‘It is clear that there has been an adjustment in the property market, but that should come as no surprise given the financial challenges faced by households.
“The market is moving slower than this time last year, when it was whipped up at a breakneck pace. Homes went from offer to offer in weeks.
Affordability remains the biggest barrier to home ownership as households are hesitant to commit to a mortgage they can’t afford. Because rents continue to rise, it will also be difficult to save for a deposit.’