New data from HM Revenue and Customs (HMRC) has shown a decrease in the number of UK residential property transactions in February 2023 compared to the same month last year.
The provisional non-seasonally adjusted estimate for residential transactions in February 2023 stands at 76,920, which is 18% lower than February 2022.
However, the figure is 2% higher than January 2023.
The provisional seasonally adjusted estimate of UK residential transactions for February 2023 is 90,340, also marking an 18% decrease compared to February 2022 and a 4% drop from January 2023.
In terms of non-residential transactions, the provisional non-seasonally adjusted estimate for February 2023 is 8,710, 7% lower than February 2022 but 8% higher than January 2023.
The provisional seasonally adjusted estimate for non-residential transactions in February 2023 is 9,870, a 7% decline from February 2022 but a 5% increase from January 2023.
Reaction
Kay Westgarth, director of sales, Standard Life Home Finance:
“With Spring just around the corner, the dust has started to settle on what was a disruptive end to last year. Property transactions have returned to a steady rate and – despite the complex economic backdrop – are consistent with pre-pandemic levels.
“However, while the signs are largely positive for the months ahead, the ongoing cost-of-living crisis will be front of mind for many homeowners – especially older borrowers who may be struggling to meet payments from a fixed income. A frank conversation with a financial adviser is always a good first step for consumers who want to better understand their finances and options – even if the right option for them is to do nothing at the moment.
“Equity release serves as a viable tool for many, and this should be firmly on the radar of advisers when speaking to clients as this type of personalised advice can help people to make choices which work for them now and in the future.”
Nicky Stevenson, managing director at national estate agent group Fine & Country:
“The impact of last year’s Mini Budget and the subsequent rise in mortgage rates started to feed into lower property transactions at the beginning of this year.
“Due to the length of time it takes to complete on a property, many of these sales will have been agreed just as mortgage rates spiked last autumn, resulting in a number of transactions stalling due to affordability issues.
“While we will continue to see a slowdown in sales compared to 2022 and 2021, both years were remarkable outliers, driven by the race for space and stamp duty holidays.
“We can therefore expect to see the market resettle back into historic norms over the course of 2023, starting with an uptick of activity this spring.
“What the housing market needs now is confidence, and buyers will have a close eye on the Bank of England base rate decision later this week. If we get through that with very little movement in interest rates, then we’re in a good place for the market to kick into the next gear.”
Danny Belton, head of lender relationships, Legal & General Mortgage Club:
“Despite a slowdown in transactions completed in February, there are still plenty of reasons to be positive about the market as we head into Q2. According to the latest data from Moneyfacts, product choice recently passed 4,000 for the first time since August 2022, while the average product shelf life has rocketed to 28 days (up from just 15 a month ago), all of which makes life easier for brokers and borrowers. Additionally, the average two- and five-year fixed rates fell month-on-month for the third month running, supporting both purchase and remortgage activity. These are all positive and recent developments which have not had an opportunity to impact transactions yet.
“It is also important to recognise that we have become accustomed to supersonic levels of activity triggered by the Stamp Duty tax break. Any dip in activity over the next few months will likely return us to average pre-pandemic levels, and not anything sinister. Nonetheless, with various moving parts, it is important that anyone concerned about the changing market consults a professional mortgage adviser, who will be able to explain the impact (if any) on their situation.”
Stuart Wilson, chairman of Air Club:
“This morning’s figures are a positive indication that the market is finding its strength again and there is room for further optimism as we head towards the Spring, with economic conditions improving. The trends we’re starting to see in the later life market, as well as the wider mortgage market, are a far cry from this time six months ago.
“Though things are moving in the right direction, some barriers do remain. Affordability is still a key issue for prospective homeowners and first-time buyers are increasingly needing support from their families to get that first foot up. Our industry must be ready to provide the necessary advice and guidance to help this happen, in the ways best suited to each individual circumstance.”
Gary Bush of the Potters Bar-based MortgageShop.com:
“Residential property transaction levels slowed sharply as a result of the mini-Budget debacle. The extent of the slowdown is very evident in this data. The mini-Budget piled even more fear onto consumers who were already being hit hard by the cost of living crisis, so it’s no surprise demand dropped off a cliff. To add to the problems the mini-Budget caused, sadly lenders overreacted on the whole by either ceasing to lend or creating rate chaos by drastically overpricing future rates. UK banks shouldn’t be seen by the general public making such knee-jerk and panicked measures and it ruined what little consumer confidence was left. Despite all the current news surrounding global bank failures, I feel that the Bank of England should still increase the base rate and not take its eye off the ball, namely containing inflation.”
Paul Currie, partner at Northampton-based DFA Law:
“Though these figures show transaction levels are down nearly a fifth compared to a year ago, as a firm of solicitors offering residential conveyancing to clients, we have seen a steady return to 2022 levels of activity following a decline after the mini-Budget through to December, our lowest level of new instructions for some time. Last year’s mini-Budget undoubtedly spooked the city and lenders alike but with the big banks releasing much more favourable products in the first quarter of 2023 so far, there appears to be some demand stimulus again. On the flip side, commercial property transactions do appear to have stalled, which is likely down to issues with labour, cost of materials and delays with planning applications. In addition, funding for commercial projects is not as available as it was in the recent past.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“The mini-Budget caused a catastrophic fall in consumer confidence, which the mortgage market is only slowly recovering from. However, mortgage rates are no higher now than they would have been without the Truss fiasco. Ten consecutive base rate rises are the primary driver of the market slowdown, though it’s possible we’ve seen the last hike after the events with Credit Suisse and Silicon Valley Bank. So-called affordability, or more accurately, buyers’ ability to borrow enough to pay the overinflated prices properties are on the market for, has been severely hit. Lower house prices are what’s required to make property truly affordable again. If mortgage rates remain at current levels, that’s virtually guaranteed. The only question is how far they fall.”
Rhys Schofield, managing director at Derbyshire-based mortgage advisers, Peak Mortgages and Protection:
“Don’t read too much into this data as things have improved dramatically over the past two months or so. There are currently good levels of activity that will feed through into the data in the months ahead.”
Luke Thompson of King’s Lynn-based PAB Wealth Management:
“The increases in interest rates have affected the property market massively in recent months. Since January, rates have eased slightly and this has made things slightly more competitive but I think buyers are having to get used to the fact that the age of ultra-low interest rates is almost certainly behind us. The biggest reason for the fall in transactions is increased costs. In October and November, we had purchasers pulling out of deals on a daily basis. This has abated somewhat as buyers have become used to higher interest rates but it has meant that sellers aren’t achieving the higher sale prices they would have been hoping for in mid-2022.”
Amit Patel, adviser at Welling-based mortgage broker, Trinity Finance:
“After successive years of cheap borrowing, 2022 saw an upward trajectory of base rate rises with a steep jump in inflation due to the energy crisis. The mini-Budget added more fuel to the fire, the markets reacted and all hell broke loose as lenders increased their rates and tightened affordability. People tend to be more cautious when there is uncertainty about job security and the wider economy, the only way to reverse the trend would be to keep base rates on hold or even a reduction by 0.25%. The housing market cooled somewhat but transaction levels will return to normal levels very shortly.”
Carl Howard, group CEO of Andrews estate agents:
“Off the back of a long period of cheap funding, dating back to 2008, a change in the mood music was always likely to spark uncertainty and affect sales volumes before prices.
“While the year-on-year seasonally adjusted decrease of 18% in completed sales for February doesn’t paint a rosy picture, market angst about 2023 transactions feels overdone. The 4% monthly decline reflects a filtering through of the cooling effect of high interest rates, coupled with the soaring lending rates that characterised the Liz Truss era. However, a spring bounce is on the cards and it is more likely we will see a ‘return to the mean’ following three unusual years during the pandemic.
“The spectre of the autumn Budget, which hung over the end of 2022 and created a short-term brake on the market, leaving many transactions in limbo, seems to have finally lifted. Sentiment is slowly improving and, despite some regional variation, there is a sense that deals are being driven by demand rather than necessity.
“Buyers who were hunkering down at the end of 2022 are now steadily returning to the market, encouraged by settled mortgage rates, cooling inflation and the prospect of striking a bargain. Sellers are playing their part here too, with more prepared to be flexible on price in order to get deals over the line.
“Although new data from Rightmove shows that prices have risen 0.8% in March, the decline in consumers’ spending power, coupled with the potential for recession later this year, means many people will still be keeping a watching brief on this market from the sidelines. The next six months will be pivotal for the market.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“The more stable picture in transactions after successive falls underlines the impact on the housing market of September’s mini Budget, which has not quite run its course.
“These figures are a better indication of activity over the past few months than house prices. Confidence has slowly returned, now that interest rates and inflation are starting to fall, while the market is less competitive and more price sensitive. Many are encouraged to dip a toe in the water after failing to find a property in the stamp duty holiday-inspired frenzy.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“Transaction numbers may have dipped year-on-year given uncertainty around mortgage rates in particular.
“After years of little movement in rates, borrowers are becoming accustomed to volatility in the mortgage market, with the chance of a hold in base rate at the next Bank of England meeting now more likely on the back of recent turmoil in the banking industry.
“Swap rates, which underpin the pricing of fixed-rate mortgages, have started falling again, and a number of high-profile lenders have reduced fixed rates, including Santander, which is launching a sub-4 per cent five-year fix today.
“Borrowers may be tempted to wait for rates to fall further but there is a danger that they might not and trying to predict interest rates can be a dangerous game. Seeking advice from a whole-of-market broker as to the options available is crucial.”
