The UK property market has boomed over the past year. Understandably, buyers have been wondering when it might start to cool off.
Well, new property sales figures from HMRC indicate that the overheated market may be starting to do just that. Here’s the lowdown.
What do the latest HMRC figures tell us?
According to HMRC, property transactions in the UK fell by a fifth in the month of January compared with the previous month.
The stats show that a total of 85,520 properties changed hands in January, which is 22.2% lower than the number sold in December 2021 and 12.6% lower than the number for January 2021.
The new figures are close to the typical January levels experienced before the pandemic hit.
What caused the drop in sales in January?
According to Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, it takes approximately 16 weeks from the time a property is listed to complete a sale. So, the drop in sales in January actually reveals a quiet October for house-hunters in the UK.
Coles says one significant cause of the subdued number of transactions was the end of the Stamp Duty holiday at the end of September.
Under the tax break, buyers didn’t have to pay Stamp Duty on properties valued at £500,000 and below. As Coles points out, the tax break might have inspired a lot of buyers to bring their transactions forward in order to benefit from the saving. This means that there was always likely to be a lull in the number of sales afterwards.
Interest rates were also a factor. Back in October, there was a lot of talk about an imminent rise in interest rates. Although the Bank of England didn’t act until December, some mortgage companies raised their rates during this period.
The broad speculation, combined with hikes in interest rates by lenders, may have dampened buyer enthusiasm, resulting in a lower number of sales.
A housing stock squeeze could also have played a role in cooling the market. As Coles says, even where there were buyers on the books, there wasn’t enough housing inventory to go around.
According to a new report from Savills, nine out of ten buyers (90%) say a lack of housing inventory has hampered their ability to purchase a home.
Will home sales pick up soon?
Coles thinks it’s highly unlikely.
She explains, “We’re battling the biggest squeeze on incomes in a generation, including a 54% hike in energy prices that’s going to force everyone to reconsider their spending.”
Moving now, especially when house prices are still sky-high, is not likely to be an option for many because it means stretching their finances even further than they are already.
As a result, there is a good chance that sales will not pick up this spring as some might have expected.
What’s the best move for buyers going forward?
Some of the factors that contributed to lower home sales in January continue to hamper many aspiring buyers’ dreams of owning a home right now. So, what is the best course of action for buyers going forward? It depends on your personal situation, as well as the options you have in today’s market.
If you’ve been planning to move for some time, have a good mortgage offer in place and find a home that fits your budget, it might still be worth putting in an offer.
However, if you are not under immediate pressure to move, it could also pay to sit tight. More properties are expected on the market as the year progresses, which should provide more options.
According to some experts, one of the knock-on effects of increased supply could be a drop in house prices. So, by waiting, you may be positioning yourself to spend less on a home while also having a larger selection of properties to choose from.
In the meantime, you can focus on getting your finances in order. This could include saving more money for a deposit. A higher deposit can help you qualify for a much more competitive mortgage deal. By using The Motley Fool’s mortgage calculator, you can find out how much you might be able to borrow and how much you might need to save.
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About the author
Sean is a personal finance writer with a strong passion for helping others become more financially literate and make better financial decisions. He covers everything from credit cards to savings to investing.
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