FIRST-TIME BUYER SQUEEZE
First-time buyers, particularly those in London and the South East, will be hardest hit by the cost of living crisis. Higher interest rates will reduce the amount they are able to borrow, while spiralling inflation will mean that they can set less money aside for a deposit. Also, Help to Buy is ending. The share of homes bought by first-time buyers is set to drop from a record 26% in 2022 to below 20% in 2023.
CASH BUYERS BECOME THE POWER PLAYERS
Higher mortgage rates will propel cash buyers to the front of the queue. In 2022, one-in-four homes were bought by cash buyers; a decade ago they accounted for as many as a third of deals. Millions (54% of households, in fact) own their homes outright, having paid off their mortgages. In 2023, many of the older members of this group will opt to downsize to avoid larger energy bills. They will use their cash to snap up the pick of smaller properties.
LOCAL HOUSE PRICE VARIATIONS START TO VANISH
Flexible working is one pandemic trend that seems to be set to stay. People who are working flexibly can extend their search for a home over a wider area because they are commuting less. As a result, we expect house prices to move more similarly across neighbouring towns, cities and even regions. Local factors will, of course still drive differences. But the broad direction of travel is likely to be more similar.
FLATS STAGE A COMEBACK
In 2021, flats accounted for just 17.3% of homes sold. That’s the lowest level since 2002. But flat sales are edging upwards, back towards 2019 levels. We expect this to continue, driven by locations outside London. Sales of new-build flats should revive, as they become a more attractive financial proposition. This will be thanks to the ongoing resolution of cladding issues, the removal of ground rent from all new leases and the capping of ground rents in lease extensions.
LOWER YIELDING LANDLORDS QUIT THE BUSINESS
Rising interest rates will be a blow to landlords operating in areas with low rental yields, as more of their income will be swallowed by higher mortgage payments. Some of these investors will fall into losses because they have been also hit by changes to mortgage interest tax relief. If landlords, particularly in the South where yields are lower, cannot pass these extra costs onto tenants or refinance, they will sell up. Although a fair number will, doubtless, use the proceeds to buy higher-yielding properties elsewhere.
MAINSTREAM HOUSEBUILDERS DEVELOP A TASTE FOR PRIME
Help to Buy is being withdrawn. There seems to be little appetite in government to extend or replace the scheme. This probably means that fewer first-time buyers will opt for a new-build property. Consequently, we expect some mainstream housebuilders to diversify away from first-time buyer-friendly homes into the prime markets. They would offer increased customisation and bespoke designs in areas where deep-pocketed buyers are willing to pay a premium for these and other features.
