Buyers face bidding wars to snap up homes despite the cost of living crisis, soaring inflation, and fears of a property crash.
It took less than a week to secure a buyer for a two-bedroom garden flat in north London, with a guide price of £950,000. Featuring a garden, a large patio, underfloor heating, and oak floorboards, it is in a mixed area on the outskirts of Camden and Islington.
Andrew Groocock, a regional partner at the estate agents Knight Frank, which helped make arrangements for 23 viewings stated:
“We’ve been inundated with people wanting to see it. It ticks the boxes of exactly what’s hot in the market at the moment. It’s still an incredibly buoyant market. The last two years have been remarkable.”
Inflation in the UK has hit a 40-year high of 9%, the cost of living crisis is deepening as energy and food bills increase while real wages are dropping, and UK interest rates are escalating – but the housing market is still buoyant. House price increase may well have peaked, but the “race for space” that began during the Covid pandemic goes on.
Many people have taken up hybrid working and spend more time at home, accelerating the demand for larger properties with a garden. Andrew Perratt, the head of the country at rival estate agent Savills, says commuter belts around big cities continue to be property hotspots – and the commuter zone has been expanded as people who do not require to be in the office daily are ready to travel further.
Estate agents say demand is far overtaking supply as most properties get snatched within a week or two, while it takes new sellers longer to place their homes on the market. Agents talk of bidding wars, and potential buyers sending personal letters with pictures of their children and pets to market themselves to sellers, in a desperate effort to secure a purchase.
Lucy Joerin, a joint managing director of the Oxfordshire-based Stowhill Estates, says big family homes that took six to nine months to sell before the pandemic now sell within two to three weeks, with one coming under offer within four days of being launched. She said:
“It’s not always the highest offer. A lot of our buyers are putting together CVs, almost like a pitch to sellers … A key thing is that families are going to participate in village life.”
She narrates that two buyers who were successful in recent days made a “lifestyle pitch” – sending letters about their families, with photos and assurances that the children would go to local schools.
Jeremy Leaf, an estate agent in north London, says when he was keen to purchase a particular flat three decades ago, he also put personal notes through the door. “Why not?” he says.
“Do whatever you can to get a property, particularly when it’s in such short supply and you want a particular road or catchment area.”
Various large family homes in Dulwich, a well-off neighborhood in south London, on the market for between £1.2m and £2m, have just had sales accepted “well above” the guide price, Groocock says.
Two of them sold within a week – while a five-bed house, on the market for £2m, had 46 viewings and 29 offers, while a three-bedroom house, priced at £1.5m, had 47 viewings and 23 offers. Several go to sealed bids – where all bidders submit offers at the same time to the agent without knowing what the competition is prepared to pay.
Around 40% of properties being advertised by Knight Frank throughout London are under offer at the moment, which is unusual. For the first time since the Covid pandemic hit, Middle Eastern buyers are coming back – with several booked in over the next two weeks to view modern apartments in Notting Hill and Kensington.
The frenzy might be brief. With a worsening cost of living crisis and interest rates hiking as the Bank of England struggles to curb inflation, some dread the housing market could collapse, though others are convinced a crash can be averted.
According to this week’s labor market data:
“There are more jobs, more vacancies than unemployed people, so that’s going to give confidence that people can meet their obligations in terms of repayments.”
Renters, facing a triple blow of rising rents, food, and energy bills, will labor more. Monthly rents have jumped 40% from ten years ago, and tenants are going through the full impact of rising costs, according to the property website Rightmove, with charges growing at the sharpest pace it has ever posted.
Those capable of purchasing their own homes have coped better. The Bank of England began raising its base rate in December, and it has gone up from the 0.1 percentage point level it had been at for 3 years to 1 percentage point this month, and more increases are expected, but home loans are still cheap by historical standards, brokers say.
Leaf says the pace of the housing slowdown will depend on how hawkish the Bank of England lifts borrowing costs.
“A correction is less likely this time as interest rates are lower so debts are relatively more manageable, though it is still very difficult of course for some in the midst of a cost of living crisis.”
Jonathan Harris, the managing director of the mortgage broker Forensic Property Finance, says:
“The market will probably plateau for a while. We will see steady rises in interest rates, not massive hikes.”
With three-quarters of borrowers on fixed-rate mortgages, according to the trade body UK Finance, most people’s monthly payments have not been affected yet. Those who wish to buy are keen to fix, usually for five years, while there is also added interest in fixing mortgages for seven or 10 years, brokers say.
David Hollingworth at L&C Mortgages said:
“Fixed rates have been the product of choice for some time now.”
People can fix their mortgages for five or 10 years at the same rate, at just below 2.5%. The situation is risky, with lenders promoting and then pulling rates every week.
But Leaf says the outlook has improved since 2008 when the market collapsed and the value of some properties dropped by 50%. He said:
“Repayments, interest rates have been so low, and even those who are suffering, hopefully, they won’t be repossessed and they won’t get into huge debts, as some people did previously. It’s different from last time.”