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Property sales drop 12% in April – is the market starting to free fall?

26 May Property sales drop 12% in April – is the market starting to free fall?

Property sales have started to decrease for the first time since the end of the stamp duty holiday in October 2021. Completed sales in April came to 106,780 – 12% lower than the same period last year, according to HM Revenue & Customs. In contrast to this, average two-year fixed-rate mortgages rose to 2.35% in April – representing the sharpest six-month increase since 2003, with interest rates likely to increase these bills further. David Hannah, Group Chairman of Cornerstone Tax, suggests that the housing market could be set to cool, but we won’t see a dramatic drop.

The property market is becoming increasingly volatile, as an unbalanced supply and demand level has pushed the average asking price to £360,101 – representing a £19,082 increase over the past three months. Buyer inquiries are 65% above the levels of 2019 and 53% of properties are selling at or over their final advertised asking price. Because of this, the average cost of a property increased by 1.1% in April marking the 10th consecutive monthly rise.

The latest decrease in property sales is an indicator that the housing market is starting to cool which would represent an opportunity for buyers. April’s rise in prices is down on the 1.4% increase in March according to Halifax’s monthly property index. House price growth is expected to continue to slow due to the Bank of England’s decision to raise the Bank Rate to 1%. House prices have continued to defy expectations, but the cost of living crisis, mixed with rising interest rates, will clearly have a major impact on the property market.

David Hannah, Group Chairman at Cornerstone Tax, discusses:

“I don’t predict the property market to fall significantly. The surge in demand, even with rising interest rates, represents that there’s an adequate amount of liquidity in the market, which is a good sign. We have had the pandemic, and substantial government spending because of it which has increased interest rates. But the question has got to be – will the global lending system be able to maintain adequate liquidity? And I think the answer is yes it will. Even though we have seen the decrease in property sales, we are certainly not going to see, as some people have predicted, 30 or 50% falls in the market.

“If we look at what has been going on – house price growth, retail inflation, energy costs surging, that’s going to put pressure on employers to raise wages. I believe wages will rise, meaning real spending power will not actually decrease. If you borrow a hundred thousand pounds today, the fixed figure of one hundred thousand pounds doesn’t rise in line with inflation. So, in five years time that debt is probably worth half what it is today. In high inflationary times with relatively low interest rates, it makes sense to borrow. The debt is being eroded by inflation, whereas the value of the asset (the house) is actually going up in line or ahead of inflation. It’s a way to make real returns.

“The problem we do have is the rate of demand and supply. If builders are building and they’re over supplying, it will soften the increase and the appreciation in asset value. But, if the number of people wanting to buy houses continue to exceed the supply, then those prices are going to rise.

“We have an open market in the UK which means not only are domestic purchasers and investors looking to buy but we have inbound investors. We also have quite a number of people relocating to the UK. Overall, I expect demand for UK housing to continue to outstrip supply – pushing price increases ahead of inflation and provided wages are increased, the affordability of housing will stay in lockstep.”