What do the latest property transaction numbers say about the market?

High mortgage rates and sticky inflation take their toll

Transaction levels across both the residential and non-residential sector fell last month, the latest HM Revenue & Customs (HMRC) Property Transaction data shows.

The number of UK residential transactions in July totalled 86,190, around 22% lower than the same month of the previous year and 9% lower than June 2023.

For non-residential transactions, the number decreased by 9% year on year, with the July 2023 total of 9,340 also 8% lower than the number recorded in the previous month.

HMRC, in its latest monthly property transactions report, said the levels of current monthly property transactions were similar to what they were in early 2020, before the height of the COVID-19 pandemic.

It also noted that the number of residential property transactions in the year to date were significantly lower than those in early 2022, when the pattern of transactions was heavily affected by the pandemic and temporary reductions in stamp duty.

Terry Woodley managing director of development finance at Shawbrook, said the latest HMRC figures showed “a muted month for property transactions as high mortgage rates and sticky inflation take their toll on the market.”

“With demand inevitably following suit, property developers need to be vigilant to increased difficulty in turning projects over and may need to adjust their prices to attract buyers,” she added.

Woodley, however, pointed out that while a decrease in property transactions may be challenging, it could also present opportunities.

“Developing property for rental purposes could provide a more stable income stream during periods of reduced sales activity,” he explained. “Either way, developers will need to adapt their strategies to suit the changing market conditions. This could involve diversifying their portfolio, exploring new geographic areas, or targeting different types of properties, such as houses of multiple occupation, build to rent, or student accommodation.”

For James Bull of mortgage broker JB Mortgages, the property market had become “a shadow of what it was last year.”

“The fact that transactions in July 2023 were down sharply compared to July last year says all you need to know about where the market is at,” Bull said. “Throughout the year, the purchase market has really slowed as the impact of higher mortgage rates has kicked in.

“There are regional variations, but the one constant is that only realistically priced properties will sell. The one thing supporting prices and favouring sellers, if only marginally, is the lack of supply. Many existing homeowners see this as a bad time to sell a house, so there are not enough properties for sale to meet the demand.”

Adam Oldfield, chief revenue officer at Phoebus Software, added that the “beleaguered housing market was in dire need of a pick-me-up.”

“We may have to wait a few more months to see an upturn, but there may be light at the end of the tunnel,” Oldfield said. “The knock-on effect of rising mortgage costs is that house prices, artificially inflated during the pandemic, are coming down and making it more affordable for those trying to get onto the property ladder. This could mean first-time buyers, who have been desperately trying to save for a deposit, may find asking prices falling within their budgets.

“Nonetheless, the responsibility for assessing affordability of ownership, not just paying a mortgage, will be with lenders. It is definitely a buyer’s market, but no doubt, with an air of caution.”

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