MOV8 has ridden-out the property and financial crash of 2008/09 and the Covid pandemic and lockdown of 2020. In spite of that, 2022 has been one of the most unpredictable years in the Scottish property market that I have ever witnessed. So that’s saying a lot! I thought it would be worth looking back at the year that has been and to look forward to the year to come in the Scottish property market.
Coming into 2022, interest rates remained at a historical low and mortgage rates were particularly attractive. The conditions were great for property buyers, except for one major thing…the difficulties they had in finding and then securing a property amidst unprecedented competition from other buyers. The Scottish property market in early 2022 remained afflicted by the same conditions that we have seen in the past few years, with supply of new stock coming to market not keeping-up with buyer demand. Then everything started to change.
The conflict in Ukraine led to fuel bills of all sorts rising and was partially responsible for inflation starting to rise at a level that the Bank of England couldn’t ignore. This in turn led to the “bank rate” (often known as the “base rate”) rising on a consistent basis throughout the remainder of 2022 in an attempt to curb inflation.
In spite of this, mortgage rates remained attractive and competition amongst buyers remained fierce. Then, a new Prime Minister was elected by the Conservative party to replace the outgoing Boris Johnston, and a new Cabinet, including a relatively unknown new Chancellor of the Exchequer, made some “bold” moves. A “mini budget” in late September introduced some of the most sweeping tax cuts that the UK has ever seen. Markets reacted very badly, Sterling plummeted, “swap rates” (which many mortgage lenders use to set their mortgage interest rates) went up sharply, mortgage lenders starting pulling products off the market overnight and the best available mortgage interest rates doubled or tripled compared to those available immediately before the “mini budget”.
This had a seismic effect on the property market. In the month immediately following the “mini budget”, we saw the number of properties going Under Offer literally half compared to the previous month. We do the legal work (conveyancing) for the clients of many of the leading estate agents in Scotland and we immediately saw a significant drop in the number of new cases we were handling.
Thankfully, many of these measures have been reversed by the new Prime Minister and Chancellor of the Exchequer, markets have regained some confidence and “swap rates” are coming back down. This has, in turn, led to available mortgage products becoming more attractive and buyers who were temporarily priced-out of the market in October are now able to look for a new home again. However, there is no doubt that the era of cheap lending is over and mortgage rates moving into 2023 and beyond are likely to be significantly higher than they have been in recent years.
Volumes of property sales and purchases have dropped-back from the post-pandemic highs that we saw as a result of pent-up demand and governmental financial support being injected into the economy.
In late 2022, the UK saw the first indications of a “cooling” of the property market, with property price growth in many areas starting to drop. That’s not to say that property prices have fallen, just that growth has slowed.
Amidst the mortgage chaos in late September and October, there are green shoots of hope for those property buyers who are able to secure a mortgage and afford the repayments at the new, higher available rates. Competition amongst buyers has definitely dropped. Our Purchasing Team advises and places offers on new homes for dozens of clients every month and has reported that there are considerably less Closing Dates being set on properties. Within our own estate agency department, we are handling less offers but selling similar numbers of properties compared to the period before the October “shock”. More properties are moving to a “Fixed Price” or even “Offers in the Region Of”. The reduction in competition is resulting in a drop in the percentage over Home Report valuation that many properties are achieving. However we are still seeing properties on average achieving more than Home Report valuation.
What does this mean moving into 2023? Is this good or bad for the market?
In many ways, we are seeing a return to a healthier property market in Scotland. Many analysts in 2019 predicted that property prices would experience a “correction” in 2020. The market had seen several years of strong growth and the cycle was due to end. However, the Covid pandemic and resulting injection of Government money into the economy had completely the opposite effect on the property market and we saw a couple more years of strong price growth. In short, a “correction” is overdue.
What we are seeing now is a return to a market where sellers set an asking price and buyers have more certainty that, if they offer that price, they will secure the property. This should, in turn, give such buyers who have a property to sell more confidence to put their properties on the market whilst they are looking for their ideal home. Conventional wisdom is that sellers should first agree the sale of their existing property and then buy a new one. However, due to the lack of certainty about buyers’ abilities to secure their onward purchase, we have seen several years of people buying properties “Subject to Sale” of their existing property. That causes chains to form, transactions to fall through and less supply of new stock to the market.
Many people who are already feeling a cost of living squeeze are going to come to the end of their current mortgage deal in 2023. The available rates in 2023 for these people will not come close to the rates that they have enjoyed to date. Unfortunately for them, that means that some people who had no intention of moving home might find themselves in a position of having to move. Whilst this is bad news for such sellers, it’s good news for the market in general and for buyers as more stock comes to market.
Will property prices crash? No, I don’t think so. However, a reduction in the percentage over Home Report valuation that buyers have been paying in recent years will give the impression of property prices falling. I would expect this to be as much as 6 percent. However, this is a drop from a historic high, with prices having risen by about 20% in the two years since the Covid pandemic started. Very few sellers, in reality, will therefore experience their property being worth less when they come to sell it than when they bought it.
This is likely to be our “new normal” market conditions for the coming few years. Interest rates currently available, whilst considerably higher than they were in early 2022, are comparable to rates available before the banking and economic crash of 2008/09.
In short, I expect to see more properties coming to the market in 2023 than in 2022, for prices to “soften” a bit and for more buyers to be able, more easily, to secure a new property. However, the number of people who are going to be able to afford the increased interest rates available for mortgage products is likely to drop significantly versus 2022 and some buyers, sadly, are likely to be priced-out of the market for the time being.
Buyers will tend to read the most negative headlines about the property market whilst property sellers remain optimistic and hope for the best. This always causes a period of adjustment, when a market changes, where buyers’ and sellers’ expectations about price are not aligned. Getting the best possible advice from expert estate agents and solicitors who really understand all market conditions (and not just the “up” market of the past few years) is going to be even more critical than ever in order to correctly set the asking price at a point that will generate interest and then to steer you, as a buyer or seller, through the negotiation process that will inevitably follow as less properties go to blind auction (“Closing Dates”).
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