Nationwide House Price Index - February 2023

With annual house price growth now negative, the first quarter of 2023 is the best buying opportunity in the UK property market we have seen over the past 15 years. With 10-year swap rates well under the 4% mark, and inflation set to come down to mid-single-digit figures within the next two quarters, this depressed sales market is particularly suited to professional portfolio landlords. I expect sales volumes overall to plateau until summer and rise in the second half of the year, on account of strong demand led by lower interest rates and greater market confidence. It remains to be seen how the Sunak/Hunt duo deliver on the much-needed landlord tax reforms over the next two quarters. Depending on the outcome, there could be a sharp increase or plateau in demand from the landlord community this year.

There have been calls recently from think tanks for Jeremy Hunt to freeze stamp duty to stimulate the housing market and enable people to downsize. Unfortunately, this seems very unlikely to happen so we are going to have to rely on the constant good news that mortgage rates are reducing and just point people back to the fact this is no different to the housing market in 2019. Properties will have to be priced more realistically and sellers should expect to have to negotiate with buyers. Estate agents who have had it easy are now going to have to use their sales skills to help get sales over the line. The demand in February has been good, with a local estate agent in Salisbury telling me they had taken on 32 properties and sold 22 in the first 14 days of February. It is not all doom and gloom. We all just have to work harder and smarter.

Demand for property was far higher in February than January, which shows that while discretionary buyers are sitting tight, the serious buyers remain active. Sellers are being much more realistic on price, and are typically also buyers so they appreciate a more balanced property market. Locally, we don't expect to see the often reported 'crash' but can certainly see that a correction of circa 5% is realistic. It's no secret the market is currently favouring buyers. On a positive note, people are no longer panic buying property. A base rate reduction later this year, once inflation is under control, would certainly stimulate demand and while it's doubtful that prices will start to rise again, transactions should increase.

Demand definitely picked up in February, with many clients looking to buy now or in the next few months. Falling mortgage rates have helped sentiment and confidence seems to be returning after last year's seismic shocks. I'm firmly of the belief that house price falls will be greater than many are predicting, possibly 15%-20% this year. Mortgage rates are still double what they were fifteen months ago, which makes a heck of a difference when you've borrowed up to the hilt. There are 300,000 homeowners who need to remortgage every quarter, and most will be paying hundreds of pounds extra a month. Some will sell up, as will overleveraged landlords who cannot afford to refinance. All these factors are likely to force prices lower throughout 2023.

We are still very busy. However, the one thing we have noticed is there’s a complete lack of new stock coming. At the moment, rates are helping those wanting to purchase property. The drop in prices is stalling the amount of new properties that are coming onto the market.

February has definitely been a busier month than January. We operate primarily in the off-market space in Edinburgh and Lothians and have completed £3.3m of property sales in February. Whilst I know many estate agents will report lower than average sales prices, we have not experienced this at all with our average home still reaching 12% above the home report. Edinburgh has always been a very buoyant market and while it is natural for us to predict a downturn at some point, overall I see no changes so far. At the moment in Edinburgh we have been significantly impacted by the new short-term lets rules, resulting in an abundance of flats coming to the market. As a result, we will see a significant price decrease in flats and apartments in the city.

It is not unusual to see a drop in both supply and demand in February as buyers and sellers alike batten down the hatches and wait for the Spring. However, this February, the demand for property was almost half that of last year, while the supply of property was also weaker than usual. When you look at the broader economic backdrop, it's no surprise people are sitting tight. Buyers are wary and many sellers are struggling to come to terms with the fact that their properties are no longer worth what they were six months ago. 2023 will be a tough year for many households and the property market will not be protected from the ongoing cost of living crisis and higher mortgage rates. Buyer demand has dropped for 10 consecutive months and may continue to fall as people start to consider alternative, more affordable accommodation.

Demand has been good in February and was definitely busier than we saw at the end of 2022 and in January. I think there has been a correction in the market now, as buyers are more aware that monthly payments will be higher than this time last year and this has led to them being more cautious when making an offer on a property. Sellers have had to become more accustomed to the fact that they may not achieve the full asking price for their property as we aren't seeing multiple people bidding for a property like we were at the end of 2021 into 2022. If the base rate falls later in the year, I think it will stimulate some demand and help to keep house prices higher. But borrowers need to be aware that we aren't returning to the ultra-low interest rates we have seen since the Global Financial Crisis of 2008.

Demand for good quality homes remains buoyant in London. It's not uncommon for buyers' searches to last months or even years to find the right home. The less competitive market we're seeing at the moment is the opportunity many buyers have been waiting some time for.