Knight Frank: ‘Don’t underestimate ‘needs-based buyers’

The motivation of ‘needs-based buyers’ shouldn’t be underestimated despite the current negative market data, Knight Frank claims.

Official data in recent weeks has pointed to lower mortgage approvals and declining house prices on a monthly basis.

However, Tom Bill, head of UK residential research for Knight Frank, said the market is now balanced between caution and optimism as people get used to the higher mortgage rates since September’s mini-Budget.

He said: “While most of us have moved on from last September’s mini-Budget, the hangover is more prolonged for the UK housing market.

“True, the spike in mortgage rates after Kwasi Kwarteng unveiled his economic plan has largely reversed.

“But it should be remembered that rates jumped above 6% in the final quarter of 2022 and lenders withdrew hundreds of mortgages from the market. No wonder so many buyers and sellers put their plans on hold until after Christmas.”

He suggested there have been signs of a change in sentiment since the start of the year.

The number of new prospective buyers registering in January across the UK was 9% above the five-year average, Knight Frank data shows. 

Meanwhile, the number of offers accepted was 44% higher and sales instructions rose 6%.

Christopher Burton, Knight Frank office head for Dulwich, said: “We had fewer buyers registering in the final three months of last year because people were still licking their wounds after the mini-Budget.

“The surge of interest we’ve seen in January is because these buyers have now reactivated their plans.”

Burton added that a large proportion of new buyers are yet to market their own property, indicating they are coming to the market fresh, have accepted where mortgage rates are and need to get on with moving. 

He said: “My best guess for prices in Dulwich this year is flat, although we are still receiving offers over guide prices.”

Bill added that “the amount of financial distress in the system” will only increase and the impact of higher mortgage rates will “slowly rather than suddenly tighten its grip around buyers and sellers.”

He said the cost of living squeeze and pre-existing affordability issues will also dampen demand and prices, with the agent anticipating a 10% drop over the next two years as buyers recalculate their budgets.

Bill said: “However, you shouldn’t underestimate the motivation levels of a needs-based buyer who has come to terms with the fact that a five-year fixed-rate mortgage is now at its 25-year average of 4.3%. 

“There are many of them out there. It’s the more discretionary non-cash buyers who are hesitating.

“The resilience of prices and sales volumes will be put to the test this spring when larger numbers of transactions take place and by which time virtually no five-year fixed-rate mortgages below 3.5% will remain in the system.

“For now, the market feels froth-free, and there is optimism and caution in equal measure despite what the data from the aftermath of the mini-Budget is showing.