Simon is in a predicament. He needs to sell his home so he can be closer to his ageing parents. After finding a house a mile away from them, he accepted an offer on his current home in Hampshire. However, just before he was about to exchange contracts, the buyer reduced their offer by over £100,000. This seems to be a common occurrence in Simon’s area, according to his estate agent.
Despite the disappointing turn of events, Simon is proceeding with the sale because his parents need him and he has been fortunate enough to benefit from the rising property prices in recent years. However, he can’t help but feel that now is not the ideal time to be moving, given the turbulent property market.
Soaring interest rates and falling house prices have cast a gloom over the property market, causing potential buyers to make lower offers or back out of purchases altogether. This has created a ripple effect, jeopardizing entire property chains. In fact, one high-end estate agent in Hampshire experienced five collapsed deals in just one week.
Buyers are becoming hesitant because they can’t afford the higher mortgage rates that have reached levels not seen since the 2008 financial crisis. On top of that, inflation remains high, and it is predicted that mortgage rates will remain uncomfortably high for months to come. Even though there was a surprise fall in the inflation rate last month, it is expected to plateau rather than decrease significantly.
The impact on the property market is palpable. Nationwide reports a 3.5% decrease in average property prices in the year leading up to June, and Zoopla’s house price index shows an 18% decrease in demand for homes over the past two months. Buyers are particularly avoiding larger and more expensive properties, with sales of three- and four-bedroom family homes down by 41% compared to June 2022.
Many collapsed sales are due to buyers backing out at the last minute or being unable to secure a mortgage at the higher rates. Some deals fall apart because a bank values the property lower than the buyer’s offer, or because buyers lower their offer after initially agreeing on a price. These challenges create stalemates and roadblocks in property transactions.
In this uncertain market, some sellers are willing to accept last-minute reductions in their asking prices. However, many homeowners are still clinging to outdated prices, resulting in over half of homes sold across England and Wales being sold below their asking price, with an average discount of 4.4%. To mitigate the impact of higher mortgage rates, some buyers are resorting to cash purchases, resulting in a significant increase in cash buyers compared to a year ago.
The situation is especially dire for homeowners coming off fixed-term mortgage deals and facing significantly higher mortgage repayments. Those who took out two-year fixed mortgages during the boom caused by the stamp duty holiday will see their payments nearly double, creating financial turmoil for many individuals.
Amidst the difficulties, the three Ds – death, divorce, and debt – continue to drive the market, even in the toughest times. However, the impact of the debt part remains to be seen as homeowners face challenges in paying their mortgages at higher interest rates.
Simon, like many others, finds himself caught in the whirlwind of the current property market. With uncertainty and challenges aplenty, he remains hopeful that he can successfully navigate this storm and be there for his ageing parents.
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