Higher interest rates are continuing to impact the UK housing market. Demand is declining from home buyers and much of the lack of demand could possibly be from the lack of affordability. The decline in house prices, especially asking prices as reported by Rightmove, has both a positive and a negative side. Offering the bad news first, declining asking prices could result in a decline in property values which impacts homeowners and their loan to value ratios when seeking a remortgage, and some might encounter negative equity which occurs when the property value declines below the mortgage debt. The positive side of declining asking prices is that it could reach a point that brings buyers back into the market despite higher interest rates.

The latest data released by Rightmove reveals that the asking prices from new properties coming onto the market have declined at the fastest pace in five years for the current time of year. The decline amounted to over £6,000 to an average of £362,143.

According to Rightmove, a decline around this time of year would not come as a surprise as home sellers look to attract buyers in the final months of the year. However, the current decline is significant. It is the largest decline for November since 2018. It should be noted that the fall in asking prices was greater in August and last December, but for a November month this year’s was notable.

Another positive aspect of the current housing market is an increase in supply. This, too, could keep home buyers coming into the market. 

Offering insight as to the data, Tim Bannister, Rightmove’s Director of property science, remarked, “Despite the turbulent end to 2022, the year to date has been better than many expected. Asking prices have eased from the unsustainably frothy heights seen during the pandemic markets, where many sales went to best and final bids.

“However, new seller asking prices are now just 3% behind May’s peak and this relatively small fall in asking prices, coupled with stable numbers of new properties coming to the market each month, are strong indicators that forced sales are not widespread.

“The number of sales being agreed is now 10% below the same period in 2019, improving from being 15% below 2019’s level last month. The pandemic-driven stock shortage also now appears to be over, with the number of available homes for sale now just 1% behind this time in 2019.

“While there is certainly no glut of homes for sale, buyers across Great Britain are likely to see much more choice in their local area compared to a year ago.”

Experts are hoping the housing market proves to be as resilient as it has been in the past. No one would have expected it to remain buoyant during Brexit and certainly it outperformed any expectation during the pandemic, especially during lockdowns.

The cost of borrowing will continue to take a toll on the housing market, and it is not likely to change, at least by very much, throughout next year. Higher borrowing costs will remain.

The Bank of England’s Monetary Policy Committee (MPC) began the fight against inflation in December 2021, when the first increase to the standard base interest rate occurred and ended the long standing historically low rate of almost zero. The 0.1% base rate was a product of the pandemic.

The first increase in December 2021 started what would be fourteen consecutive MPC meetings with a rate hike. The trend ended in September 2023. In September and the following meeting in November, the MPC voted to keep the rate steady at 5.25%.

Borrowers can find some relief in knowing that lenders are holding back on the rate increases that could be seen. There is currently a competitive lending market and for the past few weeks there have been occasional declines in lending product rates, including both mortgages and remortgages. 

The housing market will likely close out the year with a positive gain, but much lower than seen in the past years when borrowing was historically low. Considering the financial strains that have impacted consumers for many years including the pandemic, higher energy costs, and inflation it is no wonder that higher borrowing costs would prove to be the final deterrent of hopeful homebuyers.