HMRC: UK property transactions down by nearly 20%

The latest figures show UK house price growth has ground to a halt. Now data from HMRC suggests transaction volumes in the property market are still recovering from the effects of the mini-budget last September.

UK property transactions were down 18% from February last year and 4% lower month-on-month – the worst February figures in a decade.

The market is struggling with lacklustre demand from buyers and a lack of sellers, who seem to be sitting on their hands and waiting for prices to start growing again.

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Buyers, in particular, are having to deal with significantly higher borrowing costs than they were a year ago.

House prices hit by rising costs

Mortgage rates began to increase rapidly in September following the mini-budget announcement when they hit a peak of 6.65%, which prompted buyers to consider whether it was a good time to buy a house.

The latest data from Moneyfacts shows the average five-year and two-year fixed mortgage rates are now 5.00% and 5.32% respectively.

While this is a welcome decrease from September’s peak, they are still around twice as high as they were this time last year.

Higher costs are hitting affordability among buyers, and, as a result, sellers are cutting prices.

While Rightmove said yesterday that average asking prices were up £3,000 month-on-month, most house price indexes imply house prices are on a downward trend.

Further, the Office for Budget Responsibility expects house prices to fall 10% by 2024 due to low consumer confidence, the impact of inflation on incomes and the expectation of mortgage rate rises.

Where next for the UK housing market?

That said, February’s data “needs to be seen in the context of a housing market that effectively switched off for the last quarter of 2022 and only turned back on again after Christmas,” says Tom Bill, head of UK residential research at Knight Frank.

“For anyone who knows how long it takes to buy a house in the UK, it shouldn't be a surprise when next month brings similarly weak numbers,” Bill continues.

“Demand and supply have been solid so far this year and sales volumes will eventually catch up against an economic backdrop that is proving stronger than expected.”

Indeed, the UK is expected to avoid a recession in 2023 despite previous, more negative forecasts.

But still, it’s unlikely things will “pick up much in the next couple of months”, says Sarah Coles, head of personal finance at Hargreaves Lansdown.

“Earlier this month, the RICS Residential Market Survey charted its tenth month of falling buyer numbers, and eighth month of falling agreed sales,” adds Coles. “It also said that sales are now taking almost 19 weeks, as recalcitrant buyers drag their feet. Because of the lag in the market, this is likely to mean depressed completions through the spring and into the summer.”

There are also interest rates to consider. “The path of interest rates from the Bank of England is increasingly difficult to predict, as it wrestles with the opposing forces of inflation and concern over the impact of higher rates on the banking sector,” says Coles.

“We have seen some big lenders cut their rates, and this week we may get a pause in hikes from the central bank, which could help on that front,” Coles adds. “However, this is not necessarily the end of the rate hiking cycle. If inflation remains sticky and the banking sector settles, mortgage rates may not be on a smooth path downwards.”