2022 has been another strong year for the number of homes changing hands. During the first six months, there were just under 570,000 completions across Great Britain, a solid performance against a backdrop of rising mortgage rates. This number may be 30% below the record-breaking tally of 2021. But the stamp holiday was only fully withdrawn at the end of September 2021.
Sales are set to slow a little in the second half of this year. But we still think there will be around 1.25m transactions in 2022, 9% more than in 2019. This would be exactly as we forecast in 2021. The delays to completions mean that the impact of higher interest rates and the cost of living are not likely to be visible in the transaction data until early 2023.
While we expect prices to stay flat in 2023, we think transactions may take a hit, declining to 1.1m. When underlying fundamentals change, such as interest rates, there tends to be a period of adjustment. During such times, households are minded to stay put.
However, although buyers who need a mortgage will be affected, cash purchasers in prime markets are likely to remain more resilient.
By contrast, first-time buyers, who have been a key force in 2022 acquiring 26% of all homes sold, will be most severely affected. Such could be the impact on their ability to afford a home, that it may return transactions to their levels of 2013 and 2014. During those years about 1.1 million homes changed hands each year.
At that time, in response to the financial crisis, lenders restricted the supply of high loan-to-value mortgages by charging prohibitively expensive rates - bad news for first-time buyers since many depend on this type of finance. As a result, first-time buyer purchases made up 16% of transactions. At the same time the ending of Help to Buy will weigh down on transaction numbers, predominately sales to new buyers.
On a more upbeat note, we do not think there will be many forced sellers in 2023: the long-term downward trend in interest rates should ensure there is no repeat of 2008. Some lower-yielding landlords whose profits have tumbled may quit the business, but we do not think much distressed stock will come onto the market.
By 2025, we think that transactions will reach their post-Covid normal of 1.3m. We believe that the number of sales will remain above its pre-pandemic level because of the increase in household formation. Also, the British now place more importance on their homes, one of the lasting consequences of the pandemic.
We also envisage a degree of pent-up demand from households who have been held back since 2022 by higher interest rates. In particular, we think there is a large cohort of would-be second steppers, particularly in London, who will have been waiting to move for some time.
