As we were predicting, the house prices did not prove to be immune to the changes in the monetary policy. In October, the average price of a UK home fell 0.9% compared to September 2022.
According to Bloomberg, this has been the largest fall since the beginning of the pandemic. The decline is sharper than the economics were predicting (0.3%).
According to the most recent number of the Bank of England, in October mortgage lending decreased by 10% compared to September by a number of mortgages originating.
With the sharp increase in the rates and the continued expectations of the decline of the financial strength of the households, we think that the impact on the property markets is still felt in the coming months.
What does this mean?
Despite the relatively moderate month-on-month fall, we expect more and steeper drops to take place.
With mortgage offers valid for up to 3-6 months, we believe that October numbers reflect the transactions initiated months ago. Hence, the October fall of 10% does not fully reflect the property market downturn we are heading to and has partially been offset by the inertion of the property and mortgage offers of the previous months.
What about Jersey
The stock of the property for sale has continued to rise in Jersey, hitting 1213 (per the Places.je portal) at the time of writing.
We are aware, however, that a number of new build properties are currently being marketed to the buyers off-plan, and are available for sale but are not publicly listed, making the stock of the properties available larger.
We are aware, that there was a significant decline in mortgage lending in Jersey during October 2022 with the number of new loan applications standing next to nothing for many of the borrowers and intermediaries.
The behaviour of the real estate sellers and their agents currently is somewhat disconnected from the fundamental realities based on the asking prices, however, at the negotiation table, the sellers are wishing to take significant discounts.
What’s next?
We are watching out for the Jersey housing prices report for Q3 with the following expectations:
- We expect a noticeable, but moderate decline in the prices and the number of transactions for Q3. This is due to existing offers on the properties and mortgages being closed in Q3 and some lenders still extending mortgages at c3% by the end of September 2021.
- In the Q4 report, we expect a significant drop in the number and the prices of the properties with some “resilience” in the prices due to change in the mix of the properties: albeit at the lower price, more of higher-end properties/properties with more amenities are expected to be transacted on, whereas the lower end properties will appear more and more overpriced resulting in a decline of their weigh in the index. For example, if a 2-bedroom property with no parking was entering the property price index in Q2 2020 at a certain price, we expect that it will be replaced with a property with parking, making the index appear resilient, despite the factual drop in the prices.
- We expect the current economic and financial conditions to have a more balanced reflection in Q1 2023 when the willing sellers we expect would be inclined to take a significant hit to the asking prices to ensure the transactions go ahead in the new economic realities.
