Statistics released by Halifax at the beginning of October confirm what many of us have known for a while: house prices are dropping and it’s a buyer’s market.

Prices fell 0.4% month-on-month in September, meaning they’re 4.7% lower than September 2022 – and the average price of a typical home has dropped by almost £14,000 in the last year.

But how did we get here? And what does it mean for advisers? We’ve answered both questions, and a couple more besides.

How we got here

The current drop in prices reflects something of a perfect storm. You don’t need us to remind you that mortgage rates are at their highest level in 15 years, or that the cost of living is squeezing affordability from all angles.

But this is just the latest domino to fall. The end of the Stamp Duty holiday and the cooling of pent-up demand that exploded after lockdowns (when many were able to build up savings) had started to take the wind out of the market’s sails long before the Russian invasion of Ukraine set off a global economic chain reaction.

That’s not to mention the exodus of people from London, famed for its high prices, and where price inflation has underperformed the rest of the UK since 2016. In an interview with The Telegraph, Tom Bill, head of UK residential research at Knight Frank, said London’s long-standing affordability issues meant buyers were leaving the capital before the pandemic as they sought better value elsewhere. While this has arguably reinforced prices elsewhere, London prices are dropping.

And, on top of this, some casual landlords are selling up for one reason or another – whether it’s because changing taxation means it’s no longer financially viable, or because the threat of now-canned EPC obligations was potentially creating a significant cost to retrofit, or simply to improve their own cash balances in the light of the current climate. Whatever the reason, there’s some additional supply coming to market, particularly of entry-level properties.

All this, and we haven’t even mentioned the B-word.

What this means for the market

As is perhaps predictable, the very top of the market is likely immune from the economy’s prevailing winds, as high net-worth individuals are cocooned from increased costs by comfortable balance sheets and little need to borrow.

The upper middle of the market is likely the sector falling first and furthest; the highest-value housing markets are most exposed to higher mortgage rates, which reduce buying power. Detached homes, for instance, increased in value at a far faster rate (23%) than flats (13%) during the post-pandemic boom, and prices are now falling fastest in the South West.

In conversations with intermediaries, we’re hearing of would-be movers who are delaying their plans until interest rates stabilise, or they feel more secure in their jobs; the most recent figures show the UK redundancy rate is now at its highest since early 2021.

The upshot is a predicted 21% year-on-year decline in property sales, according to listings website Zoopla – and more like 40% down on the first half of 2021, says Nationwide. First-time buyers are down 25% compared to pre-pandemic levels, while buy-to-let transactions are down 30% by comparison.

Today’s falling prices may stimulate some interest from would-be buyers, but the recent increase in mortgage rates likely means any savings in the purchase price are undone by higher borrowing costs. It seems eminently possible that prices will continue to gently fall, until they reach the point where increased rates routinely balance with reduced prices.

Existing homeowners are impacted by falling prices too, when their existing fixed-rate period matures. Rising rates may hurt the remortgage market more than falling prices, but a combination of both will hit consumer confidence and affordability.

This is having an impact on the remortgage market, which is shrinking – with homeowners less likely to increase borrowing – and these borrowers are instead looking for product transfers.

What this means for you as an adviser

You’ve likely already seen a change in the amount of new business coming through your door. Demand for advice across the buyer landscape – first-timers, movers and buy-to-letters – will now likely settle into a rhythm, but at a lower level than before.

You’ll also likely be seeing a drop in demand for remortgages, which will also be impacting your bottom line. Product transfers are renowned for being less lucrative than remortgages, and as a consequence it’s imperative on intermediaries to both maximise other avenues of revenue generation.

They exist, and we can help you find them. 

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