The recent decision by the Bank of England (BoE) to increase interest rates has further compounded the issue of declining home sales in the UK.
The UK housing market, which has been known for its resilience and fluctuating dynamics, is experiencing a significant downturn in demand for homes.
In a recent revelation, Zoopla, a prominent real estate company, reported that demand for homes in the past four weeks has plummeted by a staggering 34% when compared to the average demand observed over the last five years. This marked decline has left experts and market participants concerned as they grapple with the reasons behind this sudden and substantial drop.
Factors Contributing to UK Housing Sales Drop
One of the pivotal contributors to the decline in demand can be attributed to the recent increase in mortgage rates. The report highlighted that mortgage rates are now 5% and higher while renting in the UK is 10% cheaper than buying on average.
This shift is not only reshaping the housing preferences of potential buyers but also casting a significant influence on the overall market dynamics, particularly for first-time buyers.
The increasing cost of living in the UK is another major factor that is squeezing the housing market. The cost of living includes a variety of expenses, including everyday necessities like food, transportation, and utilities. As these prices rise, individuals and families have less disposable income, making it more difficult to allocate cash for big purchases such as home ownership.
Amidst this steep decline in demand for UK homes, Zoopla is projecting a staggering 21% decrease in completed sales for 2023 compared to the previous year. With only one million transactions anticipated to conclude this year, the statistics indicate a profound shift in the way Britons approach homeownership.
The average household is now forecast to shift houses just once every 23 years, a considerable six-year rise from 2021 figures.
Impact of Rising Interest Rates
The recent decision by the Bank of England (BoE) to increase interest rates has further compounded the issue of declining home sales in the UK. With the interest rate reaching a 15-year high of 5.25%, mortgage lending rates have also surged. Although there has been a slight decrease in mortgage rates, they remain at elevated levels.
For instance, the average rate for a 2-year fixed mortgage for a 95% loan stood at 6.7% during the week of August 21, according to online real estate company Rightmove. While this represented a slight decrease of 0.2% from the previous week, it highlights the challenges that potential homebuyers continue to face.
Looking ahead, there is a cautious optimism that the housing market could regain some momentum, provided certain conditions are met. Richard Donnell, the executive director at Zoopla believes that mortgage rates must fall to 5% before there is revived interest in home buying in the second half of 2023.
This demonstrates the market’s sensitivity to borrowing costs and the delicate balance that must be maintained for a sustained recovery.