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The growing disconnect in the market

Stuart Collar-Brown, founder of Assured Sales & My Auction

The mortgage market is in crisis and the residential market is in turmoil. We know this, but there are many factors contributing to the current situation, all coming together to create a stalemate and a widening disconnect between what sellers want, and what sellers get.

The housing market has hit a crunch point, largely as a result of uncertainty around interest rates. Two weeks ago the Bank of England surprised the market with a 0.5% interest rate rise, the 13th consecutive rise since 2021. While the surprising factor wasn’t the increase, we were all expecting that, the 0.5% increase was higher than it has been previously catching many off-guard.

With mortgage rates now reaching 6% for a two-year fixed, it’s a scary time for those re-mortgaging who have gotten used to sub 2% rates with their mortgage costs rising significantly when renewing. And we’re not done yet, my personal view is that based on current inflation levels there could be another three or four more rises before the year is out. We’re also now seeing last minute product withdrawals from lenders creating another level of panic as re-mortgagers and homebuyers rush to lock in the best deals.

High borrowing rates are also putting people off moving homes with many reluctant to commit to a potentially larger mortgage amidst the backdrop of so much economic uncertainty. This means less buyers in the market and for the first time in a long time, recent statistics show this is pushing house prices down. Even with less stock in the market, Nationwide figures showed that house prices had dropped by 3.4% in the space of 12 months. The biggest decline seen since July 2009 and 4% below the peak seen in August 2022. At the same time, there are fewer buyers in the market.

Research out from Zoopla at the end of June shows that as house price growth has slowed, two-fifths of sellers (42%) are accepting offers more than 5% below the asking price. This has increased from 14% that did at the same in June last year and the highest proportion since 2018. Zoopla also found that around 15% are accepting even greater discounts of more than 10% below asking price.

But who’s buying these properties? We can see from our own activity that the buyer either really wants a new property and is prepared to take the hit with the higher borrowing rates or its first-time buyers who know no different to the current rates or want to get a bargain by buying a property that needs a quick sale. These buyers are also normally able to move quickly which is another attraction for vendors and some will be prepared to take a reduction on price in return for speed and certainty that a sale will go through.

All of this mean it’s a buyer’s market, and those buyers are looking for a deal. But some over-ambitious estate agents are still pricing high to win the instruction creating a widening disconnect between what they are valuing the properties at versus what someone is prepared to pay for it in today’s market. This gives the seller unrealistic expectations and leaves them reluctant to accept lower offers, therefore creating a stalemate situation for everyone involved. Those looking to sell should seriously consider accepting lower offers if they really want to sell as those offers are likely to be 5-10% less in the next six months.

We are still seeing lots of new instructions coming onto the market but vendors must be more realistic. Good stock is being snapped up quickly but there are plenty of great properties still sitting on the market that two years ago would have been snapped up within a week. Properties that are still transacting are those desired by first time buyers as this cohort is likely to feel more comfortable with the higher borrowing rates. With many used to paying rental costs, buying will still seem more appealing that paying rent.

In this type of market, everyone wants to feel like they are getting themselves a deal – be that buying or selling. But the reality is that between the blows of the interest rate rises, cost of living crisis and economic uncertainty with house price fluctuations, we are likely to find the market in a dead-lock situation very quickly. In an ideal world interest rates would come down as quickly as they have gone up, but we know that’s not going to happen.

To keep things flowing as much as practically possible, what we need to see is more realistic expectations from both sides of a transaction along with more support from the estate agents who need to price to sell, rather than price to win instructions. At the end of the day, what’s the point in putting all that hard work into trying to make a sale, if nothing gets sold.

Choosing the right estate agent is important. There are agents that will pay valuers just for winning instructions, regardless of whether the property sells or not. Others do not belong to a professional body such as Propertymark, the FIA (Federation of Independent Agents) or The Guild of Professionals. Choose your estate agent wisely, one who belongs to a professional body, one who has spent time and money studying and passing property related exams to give you the best chance of selling your biggest asset in this ever-changing property market.

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