After a long period of stability in housing transactions between 2014 and 2020, the Covid-19 pandemic and macroeconomic events have seen volumes fluctuate significantly over the last couple of years.

Activity fell briefly during the pandemic, but surged as soon as the property market reopened and the stamp duty holiday was introduced.

Subsequently, high inflation and rising interest rates have softened transactions numbers. But while the market turmoil prompted by September 2022’s mini budget captured the headlines, transactions had been falling since September 2021, when the stamp duty holiday came to an end.

More subdued levels of activity were expected for the remainder for this year, but initial indications are more positive than anticipated with sales agreed reaching pre-pandemic levels, and cash buyers taking a larger market share.

Transaction volumes in January and February were only -6 per cent and -7 per cent weaker than the pre-Covid average for this time of year, with 76,000 transactions in January and 77,000 transactions recorded in February. However, some of this activity may have been supported by mortgaged buyers who had been able to lock in lower rates before the steep rise in interest rates in Q4 2022.

A shift in buyer types

Mortgage approvals data from the last few months points to a slowing of activity, and likely a further drop in completed sales in the coming months. Data from the Bank of England showed that new approvals fell to just 59 per cent of the 2018-19 average in January 2023. While there was a slight uptick in the number of loans approved in February, lending remained below the pre-pandemic average for the fifth consecutive month.

But although activity for mortgaged buyers remains muted, the overall number of sales agreed has recovered more strongly, according to TwentyCI. The number of sales agreed (net of fall throughs) fell by 40 per cent year-on-year in October 2022, but in March 2023, the number of sales agreed was in line with the March 2018-19 average.

This gap between mortgage approvals and sales activity has emerged as cash buyers have taken a greater share of the market. Cash buyers have been the largest group in the market since 2011, but their share of house purchases was squeezed in 2020-2022 by increased activity from mortgaged home movers.

In January 2023, cash buyers accounted for 38.5 per cent of all transactions, while mortgaged home movers had dropped to 25.3 per cent, significantly down from their March 2021 share of 34 per cent. Cash buyers and more affluent households are likely to remain the most robust buyer group until base rates begin to fall and mortgage affordability improves.

Prime outperforms

The drop in transactions seen over the past six months has also varied significantly by price point. The prime markets, where buyers are less likely to be dependent on mortgage finance, have performed more strongly.

Overall agreed sales (net of fall throughs) were in line with the 2018-19 average in March, but for properties priced at over £1 million, they were up by 70 per cent, although some of this can be attributed to price growth during the period. And for the £5 million-plus market in London, completed transactions in Q1 were on par with Q1 2021 and 48 per cent higher than the Q1 2018-19 average. 

With the cost of borrowing continuing to be the key constraint for buyers, it is likely that the less mortgage dependent prime markets will continue to be the strongest performing in terms of both transactions and price movements. 

Further information

Contact Emily Williams