Supply builds in UK country market ahead of spring

Supply in prime regional markets gathered momentum in February, signalling a busy spring market but more downwards price pressure.

As we have covered, a range of economic indicators are looking brighter, which will underpin sales activity. These include revised forecasts from the Office for Budget Responsibility in last week’s Budget - which we look at here - predicting that the UK will avoid recession and lower inflation expectations.

In prime regional markets new instructions, prospective buyers and viewings were in line with the five-year average in February, having retreated at the end of last year in the wake of the mini-Budget shock and short-term spike in mortgage rates.

Market valuation appraisals, a leading indicator of future supply, were 19.8% ahead of the five-year average in February. This came after a fall of 7% and 5% in December and November respectively (see chart).

“Many of the market appraisals I handled before Christmas were for people that had no intention of selling. Three of the four I handled last week became instructions on the day,” said Florence Biss, a senior negotiator covering Devon and Somerset at Knight Frank.

“Buyers are also coming out of the woodwork, and property with land is still attracting competitive bids. The big change on a year ago is you must be realistic on pricing,” Florence added.

Having struggled to keep up with high demand during the pandemic, supply has continued to improve in recent months and the amount of property available to buy in the country market reached a two year high in February.

With supply improving and buyers’ spending power having been reduced as a consequence of higher borrowing costs we expect house prices to retreat by 5% this year.

The impact is unlikely to be uniform. First time buyers and young families, typically with less equity or cash, will be most affected by the new higher rate environment.

Below £1m, market valuation appraisals fell 3% in February in prime regional markets versus the five-year average, and new prospective buyers fell 26%.

“Buyers are out there but they’re cautious. Young families and first-time buyers have had to adjust their sights due to a reduction in spending power,” said Helen Waddilove at Knight Frank’s Stow-on-the-Wold office.

“It’s still a good market but it’s more like the start of 2020 now,” Helen added.

However, equity rich and cash buyers are in a strong position as we have explored, and the prime market continues to perform strongly.

“At the top end of the market, rarity and the financial firepower of buyers will underpin pricing. Where we expect more price pressure is in the family home market under £2m where there is going to be more supply in the spring market this year than last,” said William Kirkland, office head at Knight Frank Oxford.