Property analyst: Falling mortgage rates are 'false p...

Falling mortgage rates are a “false positive” for the health of the property market, analyst Davy Research has warned.

A housing research note from the firm, titled Eve of Destruction, warns lower mortgage approvals in December will start to hit the market while affordability will remain an issue.

It said: “The UK housing market continues to deteriorate, the damage wrought by September’s mini-Budget resulted in a faster contraction, leading to another meaningful fall in approvals in December.

“This sets the scene for a tough 2023. Estate agent models are feeling the chill winds of greater competitive intensity as the market opportunity shrinks.”

While mortgage rates have fallen from their peak of 6% at the end of 2022, the note warns against reading too much into this.

Davy Research said affordability is worsening as mortgage rates are still higher than last year, alongside the cost of living crisis, and this is leading to fewer mortgage approvals.

It said: “The falling fixed interest rates may be a false positive, rates are now in line with the upward trend we saw before September’s mini-Budget – we would expect the rates to rise in line with future increases to the bank rate.

“Affordability will worsen, transactions and prices will follow suit. 2022 was steady, but the warnings are there for 2023.

“Despite the ongoing cost-of-living crisis and political volatility, 2022 had 1.3m transactions, 10% higher than the 1.2m average of the previous 10 years.

“The drop off in approvals since September’s mini-Budget will now begin to filter through. Affordability is tight, so it will require interest rates to materially decrease for approvals to recover.”

Despite this rather dreary outlook, the analyst maintained a neutral status for OnTheMarket and Purplebricks, while Rightmove was still predicted to outperform.
It comes as industry analyst and proptech expert Mike DelPrete last week suggested Purplebricks hit its adoption ceiling in 2019

He said the Covid-19 pandemic and the growth of similar models contributed to an erosion in new listings for the beleaguered brand, which has hit its market share.
This, he said, has also made it more expensive to acquire new customers.

DelPrete said the increase in fees at Purplebricks and shift to an employed model has put it closer to the agency brands it was once trying to disrupt.

He said: “Like so many real estate tech disruptors, Purplebricks is a cautionary tale about overreach and setting unrealistic expectations.”

The beleaguered agent is also struggling to hold onto staff after it was confirmed last week that its director of risk and compliance Helen Martin has left after less than six months in the role to return to LSL.