MortgagesNov 23 2021

Property sales plummet to 9-year low

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Property sales plummet to 9-year low
Photographer: Darren Staples/Bloomberg

HM Revenue & Customs’ provisional estimates show 85,090 residential property transactions took place last month on a non-seasonally adjusted basis, just 30 more transactions than October 2012’s total.

Having halved month-on-month, transactions last month are also expected to be 30 per cent lower than a year earlier, signalling a shift away from the highs seen in the past year.

Experts have put the “drastic”, “cliff edge” decline down to the full re-introduction of stamp duty land tax, which requires payment outright and hence impacts buyers’ affordability.

“We all knew that the market was going to slow, or even fall off a cliff, at some point,” said Richard Pike, sales director at mortgage solution provider Phoebus Software. “However, [this] is a pretty big cliff.”

Despite the figures’ provisional status, Pike said: “It is difficult to imagine that the confirmed figures will show much difference to those we are seeing.”

Looking at the figures, Anna Clare Harper, chief executive of property consultancy SPI Capital, said: “In short, a 10-year peak in transactions last month was followed by a 10-year low.”

Unsurprised by the sharp dip, Harper continued: “Stamp duty is a significant influence on affordability. Whilst buyers can borrow more from banks to pay more for housing, stamp duty has to be paid outright. For this reason, it can act as a catalyst for decisions to buy or not to buy.”

In October, the tax returned to its pre-pandemic thresholds, requiring buyers to pay it on properties with a value of more than £125,000, or in a first-time buyers’ case, on purchases totalling more than £300,000.

Between July 2020 and June 2021, these thresholds were moved, allowing buyers to avoid the tax on transactions up to £500,000.

Karen Noye, mortgage expert at Quilter, said the month on month drop off in property sales evidenced the rush to buy was heavily influenced by the government tax relief scheme.

“There has also been a fundamental change in what buyers want as people move out of cities to seek more space,” Noye continued. 

“This, coupled with fewer international buyers has already impacted transactions in built up areas, such as central London, and the end of the stamp duty holiday will have exacerbated the downward transaction trend.”

‘Overinflated’ house prices

Housing transactions typically drive house prices. In October, house prices were up 0.7 per cent, pushing the average price of a home in the UK above a quarter of a million pounds (£250,311) for the first time.

But experts warned they may well start to stutter, as inflation and potential interest rate rises could mean buyers begin to be more cautious in the months ahead.

Noye said: “While prices still seem to be on the up, the huge drop in property transactions may well begin to nudge overinflated house prices back down over the coming months.

“Not only do house prices remain in a hugely inflated state, but a rise in interest rates will push mortgage costs higher as providers are typically quick to pass on rate rises to their customers.

The Bank of England is yet to announce a rise of the UK’s 0.1 per cent base rate, despite widespread criticism of governor Andrew Bailey on the delay.

Noye reckons a rate rise will likely push home ownership “even further out of reach” for first-time buyers. 

In the meantime, Pike said the central bank’s “reluctance” to increase interest rates “may give the market a boost in the last few weeks of the year”.

This, compounded by many homeowners looking to tie themselves into new fixed-rate deals before the anticipated interest rate rise in the new year, bodes well for the housing market according to Pike.

Rates have slowly begun to climb across the board over the past month, as more and more lenders brace for the base interest rate hike.

But whilst some are sure ballooning house prices are on the cusp of deflation, others think a significant reduction in house prices is unlikely due to ongoing shortage of stock which is keeping prices afloat.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said the plummeting property transactions last month was “nothing to frighten the horses”.

She said: “We always see drops like this after the end of a tax break, and we tend to see buyers hunker down for winter.

“The monthly drop looks spectacular, as sales almost halved, but this was from an enormous peak, created by the final stamp duty holiday deadline. A major chunk of sales we would otherwise have expected this winter were rushed through in time for the deadline at the end of September.”

Coles highlighted the number of properties coming to the market has fallen for seven months in a row, and the average agent has just 37 properties on its books, so even if people are keen to buy, “there’s hardly anything on the market” at the moment.

ruby.hinchliffe@ft.com