UK house-buying demand drops 44% in wake of ‘mini’ Budget

Housing demand in the UK has almost halved in the wake of Liz Truss’s September “mini” Budget, as home hunters respond to higher mortgage rates by scrapping plans to buy and turn to the rental market instead.

According to property portal Zoopla, demand is down 44 per cent since the day of the “mini” Budget, with the sharpest falls in south-east England and the West Midlands. Zoopla defines demand as homebuyers contacting an agent directly about a specific home for sale, rather than browsing.

“It’s almost as if the housing market has moved into Christmas mode eight weeks early,” said Richard Donnell, executive director at Zoopla.

The tax-slashing proposals put forward by the former prime minister and her chancellor, Kwasi Kwarteng, caused chaos in the mortgage market, sending rates up by a percentage point or more in a little over a week and forcing lenders to pull products. That locked many buyers out of the market.

Plummeting demand has raised expectations that prices will fall next year, with the Office for Budget Responsibility now forecasting a 9 per cent drop.

Zoopla’s house price index recorded a 7.8 per cent increase in the year to the end of October, but “there’s a lot of momentum coming out of house price inflation and indices always lag”, said Donnell.

Sellers around the UK are already offering discounts on asking prices — in south-east England around a third of homes for sale have had their initial figure reduced, said Zoopla.

That is a clear sign the market is cooling down after running hot throughout the pandemic.

Government support for the housing market, a desire for more space and fraying ties to city centre offices all contributed to a frenzy of activity in the pandemic period. Property sales and prices unexpectedly soared.

“The housing market is transitioning from an unsustainably strong market [during the pandemic] to one more balanced, albeit with affordability challenges for homebuyers most reliant on mortgage finance and a weaker economic outlook for 2023,” according to Zoopla.

Borrowing costs have risen throughout the year, driven up by the Bank of England’s decision to raise interest rates multiple times to combat soaring inflation.

The rate of increase was accelerated by the “mini” Budget. Costs have come down in the past few weeks as Truss and Kwarteng’s proposals have been scrapped, but remain close to 6 per cent.

A year ago, rates of less than 2 per cent were widely available, but borrowing costs are not expected to fall back to that level in the foreseeable future.

Higher rates have derailed buyers all over the country, causing deals to collapse and forcing people who have saved a deposit to turn instead to the rental market, where increased demand is pushing up prices fast.

According to property website Rightmove, rental inquiries are up a quarter, or by roughly 100,000, year on year, with estate agents dealing with 36 inquiries per property on average.

“It’s extremely frustrating for so many people in the rental market right now, with demand so high,” said Christian Balshen, in Rightmove’s rental team.

“The number of aspiring first-time buyers who have now had to turn to the rental market is exacerbating the situation further. We’re seeing some more properties coming to market, but nowhere enough to meet demand.”