A well-known property expert reveals that cautious buyers are proactively reducing asking prices in anticipation of a declining housing market. This situation may offer profitable prospects for investors aiming to expand their portfolios at unexpectedly lower prices.
Jonathan Hopper, CEO of Garrington Property Finders, suggests that as interest rates rise rapidly, determined buyers become scarce, resulting in a market increasingly favorable to those who remain. Sellers are adjusting their price expectations before the summer slowdown by preemptively lowering prices, rather than responding to low offers by making significant reductions. This pricing shift is particularly noticeable in regions that experienced excessive price increases during the boom and areas with high levels of Help to Buy ownership.
Many sellers may find it difficult to accept, but it is a more palatable option than enduring months of an unsold home before eventually reducing the price. Hopper’s remarks follow the release of government data indicating a significant decline in property transactions. In May, the number of property sales was 25% lower compared to the previous year, reaching a total of 74,360. Accounting for seasonal adjustments, the decline amounts to a substantial 27% drop within a year. Excluding May 2020, when the market was largely closed due to the pandemic, this represents the slowest May in the past ten years.
The current situation has sparked alarm bells about the housing market’s trajectory for the remainder of 2023, presenting an opportunity for investors seeking lucrative bargains. Sarah Coles, head of personal finance at Hargreaves Lansdown, expresses concerns about the property market’s performance in May, with sales declining by a quarter compared to the previous year. These sales were agreed upon months earlier, well before the impact of rising mortgage rates that are currently disrupting the market. Consequently, there is a risk of a significant sales drought emerging later in the summer.
It is important to note that these figures represent completed sales in May, implying that many of these transactions were actually secured back in February. During that time, inflation dominated people’s thoughts, causing apprehension among buyers who feared the financial strain of committing to substantial mortgages amid increasing monthly expenses. This uncertainty led many buyers to adopt a wait-and-see approach, hoping for an improvement in their financial circumstances.
Since then, circumstances have become even more challenging due to a new mortgage crisis. Moneyfacts data reveals that back then, the average cost of a two-year fixed-rate mortgage was approximately 5.3%, while a five-year fixed-rate mortgage was around 5.0%. Presently, an average two-year fixed-rate mortgage stands at 6.37%, and a five-year fixed-rate mortgage at 5.94%.
These significant increases have a profound impact on people’s affordability, forcing buyers to make tough choices. They must either compromise on their purchasing options or face exorbitant monthly payments during a financially challenging period. Neither option is appealing, leading us to anticipate a further decline in property sales throughout the summer.
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