Reasons to Be Cheerful

June 7, 2023


It’s been a rough year for the property market, but most signs point to the worst being over.

2023 was…a year. Interest rate hikes, a cost-of-living crisis, and an Autumn Statement that seemed to say very little about anything important. You’d be forgiven, down in the conveyancing trenches, for feeling like it was a year when nothing much changed, and after 2022 that was equal parts good and bad.

However, 2024 looms on the horizon with far less menace and even a bit of hope attached. Regardless of who’s in Number 10 Downing Street by this time next year, it seems clear that things are (mostly) on the up, and that we can look forward to more market activity and therefore a slightly easier time for property lawyers in the year to come.

Interest(ing) Rates

The second successive month of the Bank of England freezing the base rate feels like a relief. After so long watching the rate creep up from its historic 2020/21 lows to its current level, it was starting to feel as if there might be no ceiling. Though the rates are still far lower than they have been in the past, what must be borne in mind is the vastly higher sums of borrowing many require to finance properties whose value has increased exponentially since the early 80s. Couple that with the cost of living crisis and an economy still recovering in many ways from the devastation wrought by Covid, and even modest rises can spell disaster for many.

But it would appear now that lenders are feeling more confident. Average 5-year fixed-rate mortgages are down 0.27% from a year ago, and 2-year fixed rates 0.7% over the same period. Lenders are already beginning to price in base rate reductions for 2024 forecasts, the general consensus being that interest rates have now peaked, and a fall is all but inevitable.

Paranormal Activity

2023 was a year in which the housing market slowed significantly. Despite this, house prices remained steadier than might have been expected. A fall of -1.0% on an annual basis ascribed by Halifax to ‘shortage of available properties for sale’ more than ‘strength of demand among buyers.’ Factors influencing this included a reluctance on the part of property owners to move as well as, according to Halifax, no spike of ‘forced sales’ thanks to marginal rises in the unemployment rate and a large number of homeowners being protected from rate rises by fixed rate deals.

All this, combined with a volatile rental market that may force many First Time Buyers into action, points to a 2024 for the housing market that promises increased activity from buyers and sellers.

Stick or Twist?

Remortgage activity has also been falling in 2023, and in consecutive months as Christmas approaches. According to LMS’ Nick Chadbourne, this seasonal issue has been exacerbated by an increase in product transfer activity, as economic circumstances become ‘particularly attractive for borrowers looking for a comparable product.’ He did go on to say that all signs pointed to an uptick in activity in 2024, and one factor that adds to the picture of an increasingly optimistic market is that of the re-mortgages done, over 40% of borrowers increased their loan size.

Political Inertia

On the downside of the equation, the Home Builders Federation released a report indicating housing supply was at risk of reaching its lowest levels in nearly a decade. Fiddling with SDLT thresholds and aiming to bring down inflation to 2% by the end of the year are all well and good, but if there aren’t enough houses to go around, then it all risks being for naught.

I’ve often said that even with our particular area of focus, it’s obvious that root and branch reform of the whole system is required rather than the tinkering at the edges preferred by successive governments. The rental market, the housing supply, and the financial assistance available to younger purchasers are all factors that influence the market as a whole. And that’s before we consider the general antiquation of much of the property-buying process in the UK which persists even now, a quarter of a way into the 21st century. If the market is to ever truly recover to the sort of levels enjoyed in decades past, it’s clear that more fundamental changes are required.

Reasons to be Cheerful?

Overall, the numbers paint a picture of a market poised to begin recovery, albeit a recovery that may be limited in scope by factors that currently seem off the table for reform. Nonetheless, progress is progress, and all signs point to a market recovery if not yet quite a market resurgence in 2024.

From our perspective, Compass Clients are seeing falling PII rates, increased productivity, and a greater sense of confidence for fee earners and clients.

We’ve solved the riddle of SDLT in leasehold transactions, worked with partner firms to improve the system based on their feedback, and grown our client base substantially. More growth and success for us in 2024 are only possible with a healthy property market, and so I confess a certain amount of self-interest as motivation as well as my desire to see law firms and other property professionals begin to thrive once again in the wake of a difficult and tumultuous few years.

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