Although prices have been more robust over the last two years than most were expecting, the stress in the market has been more evident in the drop off in transactional activity. House purchases in 2023 fell by 19% against the long term average. Although there has been a slight recovery in 2024, activity in the first half of the year was still around 11% below the norm.

Some parts of the market have been hit harder than others. Activity in Scotland and the North East has been closest to pre-pandemic levels, but London, the East and South East have seen volumes fall by 30% against the turnover of the 2010s. Buyers in these locations, already facing the challenge of needing a high deposit, have also been most impacted by the rising cost of mortgage debt given higher house price to household income ratios.     

Looking ahead, we expect transaction volumes to continue gaining momentum in 2025 and 2026. But the recovery won’t be uniform, with noticeable differences across buyer groups. The additional stamp duty surcharge announced in the Budget will dampen demand from both mortgaged buy to let investors and cash buyers.

Cash buyers

Cash buyers have remained more active than those needing a mortgage, so there is less capacity for growth from this buyer group. 

We expect cash buyers’ share of the market to drop back from comprising over 40% of all transactions, to nearer the long term average of 35%. Opportunistic buyers that have benefited from the weaker market of the last two years will be squeezed out by increasing numbers of mortgaged owner occupiers. 

Mortgaged home movers

The current low levels of mortgaged buyer activity are both a function of the higher rate environment, and the expectation of a more favourable mortgage market in the future. 

This has particularly impacted home movers, with Q2 2024 transactions falling below even the level seen in 2008/09. The need to budget for higher costs on their existing mortgage has pushed out their plans to take the next step on the ladder, breeding more of a “make do and mend” mentality. As a result there is latent demand to come back into the market as mortgage constraints gradually ease.

In the first instance this is likely to be driven by needs-based buyers. Once rates have settled in 2027, and existing homeowners have benefitted from several years of house price growth to build equity, we expect more activity from discretionary home movers. And there is potential for a sharp rise in activity in the second half of our forecast period, as pent up demand from the period of high interest rates is released. 

First time buyers

In contrast, first time buyers have continued to be motivated to get on the first rung of the ladder, particularly driven by strong rental growth over the last two years and the other trials and tribulations of private renting. 

Generally we expect first time buyer activity to continue to increase over the next 18 months, supported by falling interest rates making it more affordable to secure a mortgage. However the pattern of that growth is likely to be distorted by the end of the stamp duty concessions in March of next year.

And the lack of any buyer support schemes such as Help to Buy means that we expect first time buyer activity to settle slightly below pre-pandemic levels, and remain steady throughout the second half of our forecast period. 

Buy to Let

Increased regulation of the rental sector will also dampen demand from both cash and mortgaged investors, albeit with activity more weighted to larger, wealthier landlords. 

The prospect that the Renters Rights Bill will bring the Assured Shorthold Tenancy to an end, formally introduce a Decent Homes Standard and more generally change the balance of power between Landlords and Tenants, is likely to have a disproportionate impact on the “amateur” or “part time “buy to let investor.

Meanwhile, the reintroduction of the requirement for all private rented stock to be EPC C by 2030 will likely limit the pool of properties that landlords will consider buying. And the additional cost of entry from the increased stamp duty surcharge will also limit demand, particularly in London and the South East.

Taking all of this into account, although overall activity will grow from current levels, we anticipate that even by 2028/29, the number of transactions will remain slightly below the pre-pandemic average of 1.2 million per year.