Boston
Property Market:
Where
are the Cash Buyers?
The UK property
market has undergone significant shifts since the summer of 2020, driven
primarily by the post lockdown race between the summer of 2020 and late 2021,
and then a rapid series of interest rate hikes aimed at curbing inflation in
2022 and 2023. These changes have had far-reaching implications across the
property market, influencing both prices and transaction volumes.
As we explore
the nuances of these facts, it has become evident that while some anticipated
trends (the property market was supposed to crash in Covid and again on the
interest rate rises), this did not fully materialise. In fact, the property
market has shown remarkable resilience under pressure.
The Interest Rate Surge and Its Impact
The initial
wave of interest rate hikes began in November 2021, as the Bank of England
sought to counter rising inflation, a process that continued until the summer
of 2023. Over this period, interest rates were raised 14 times, culminating in
a peak rate of 5.25%. The Bank of England's decision to implement such a
rigorous monetary policy stemmed from concerns about the rapidly escalating
cost of living, a consequence of both domestic and global economic pressures,
including the significant disruption caused by Russia's invasion of Ukraine in
February 2022.
However, the
interest rate tide began to turn in August 2024 when the Bank cut rates
slightly, to 5%, in response to improving inflation figures. This reduction,
coupled with signs that further cuts could be on the horizon, has brought a
sense of cautious optimism to the market. For the first time in many months,
there is a glimmer of hope that the worst of the economic storm may be behind
us.
So, let us look
at house prices locally over the last 4 years.
Local Property Market House Prices in Boston Between 2020 and 2024
The average
value of a property in Boston in July 2020, was £159,815. Today, according to
the Land Registry, that now stands at £192,413, a rise of 20.4%. So, house
prices in the Boston area as a whole haven’t dropped, despite the two
predictions they would. So surely, it must be cash buyers that kept the Boston
property market afloat, considering the huge increases in interest rates?
Cash Buyers: Not the Game-Changer We Expected
In analysing
the performance of different segments of the British property market during
this tumultuous period, one of the more surprising findings is the limited role
that cash buyers have played. Traditionally, cash buyers are perceived as
having a significant advantage in a high-interest-rate environment. Without the
need for financing, they are insulated from the direct effects of rising
borrowing costs, which should, in theory, allow them to dominate the market
when mortgage rates soar. So, did the number of cash buyers rise when interest
rates began to rise in 2022?
The proportion of UK home buyers
with cash has indeed risen from the late 20%’s in 2020/21 to the early 30%’s in
2023/24.
As you can see
it increased, yet it wasn’t an avalanche. Despite their financial advantages,
cash buyers did not dramatically alter the dynamics of the market. Instead, the
pace of the market continued to be set by those who rely on mortgages, even as the
cost of borrowing increased substantially. This trend underscores the critical
role that mortgaged buyers play in shaping market conditions.
Looking locally
in Boston:
·
In 2020, 27.57% of UK home buyers were cash buyers,
whilst in Boston, 37.9% of buyers were cash buyers.
·
In 2021, 28.06% of UK home buyers were cash buyers,
whilst in Boston, 36.8% of buyers were cash buyers.
·
In 2022, 27.79% of UK home buyers were cash buyers,
whilst in Boston, 31.4% of buyers were cash buyers.
·
In 2023, 32.94% of UK home buyers were cash buyers,
whilst in Boston, 41.8% of buyers were cash buyers.
·
In 2024 YTD, 31.15% of UK home buyers were cash
buyers, whilst in Boston, 39.3% of buyers were cash buyers.
Locally in Boston,
we also saw a slight growth in cash buyers – yet again, nothing groundbreaking!
Mortgage Stress-Testing and Market Stability
So why were the
doom mongers wrong about the property market crashing due to the vast increase
in mortgage rates? This was down to the effectiveness of the Mortgage Market
Review stress-testing rules introduced in 2014 for borrowers after the global
financial crisis of 2008. These rules, designed to ensure that borrowers could
withstand higher interest rates, have been instrumental in maintaining
stability in the property market. Even as mortgage rates more than quadrupled
from their lows, over three quarters of UK’s local authorities saw house prices
increase between the spring of 2022 and the spring of 2024.
This stability
is further evidenced by the relatively low levels of repossessions compared to
the aftermath of the global financial crisis. In the 4 years after the global
financial crash (2008 to 2011 inclusive), 113,374 UK were repossessed. In the
Covid years of 2020 to 2023 inclusive, that number was 7,379 UK households.
Strong wage
growth (average UK wages have risen from £31,487pa in 2020 to £35,828pa) and
lender forbearance has also played vital roles in supporting borrowers during
this challenging period.
These factors
have collectively prevented the kind of widespread distress that many feared
would occur as rates climbed.
Affordability and the Shift in Buyer Preferences
While house prices
have remained robust in most areas, affordability has continued to be a
significant concern for buyers, particularly in more expensive urban markets
such as London. The pandemic-induced ‘race for space’ accelerated a trend where
financially constrained buyers sought more affordable properties outside major
cities. This migration from urban centres to more suburban or rural locations
has been a defining characteristic of the property market over the past few
years, and it appears to have gained further momentum as rates rose.
In more
expensive locations, where the cost of living and property prices were already
high, the increase in mortgage rates has made buying a home even more
challenging for many. As a result, these areas have seen a shift in buyer
demographics, with those less affected by higher rates—such as wealthier
individuals or those moving from more affordable regions—continuing to
purchase, while others have been priced out.
Sales Volumes vs. Prices: A Complex Relationship
As we evaluate
the overall performance of the UK housing market, it's evident that while
property prices have remained relatively strong, sales volumes did see a
decline in 2023 compared to the surge witnessed in 2021. In 2021, transactions
peaked at approximately 1.4 million, a significant increase compared to
previous years. However, by 2023, this figure had decreased to around 1.02
million.
Despite the
rise in interest rates during 2023, its transaction levels were consistent with
long-term trends (there were an average 1.06 million transactions per year
between 2008 and 2019). This stability highlights the resilience of the housing
market. 2024 projections suggest that transactions may reach approximately 1.15
million, indicating a stable property market that continues to align closely
with historical norms, even amid current economic conditions.
The persistence
of strong prices, despite lower transaction volumes, suggests a degree of
pent-up demand. If Boston buyers perceive that interest rates have stabilised
or are beginning to decline, we could see a significant increase in transaction
activity. This potential recovery is likely to be most pronounced in regions
where affordability remains a key factor, and where the desire for more space
continues to drive buyer behaviour.
Looking Ahead: A Pivotal Moment for the Boston Market
As we move
forward, the UK property market appears to be at a crucial juncture. It is
showing encouraging signs as we move through the latter half of 2024. With
listings up by 7.2% year-to-date compared to pre-pandemic averages and gross
sales 22% higher than the same time in 2023, the market is demonstrating
resilience. Net sales have also surged, with a 28% increase compared to the same
period last year, reflecting strong buyer activity. Additionally, the slight
2.6% rise in sale prices per square foot from January to July 2024 indicates a
steady demand for property. These positive trends suggest a robust market
outlook as we progress through the year.
Coupled with the
recent rate cut, and better-than-expected inflation figures, this may signal
the beginning of a more stable period. If financial markets are correct in
predicting further rate cuts by the end of the year, we could see renewed
confidence among buyers, leading to a more robust recovery in sales volumes.
However, it’s
essential to recognise that the landscape has changed. The experience of the
past four years has reinforced the importance of affordability, the resilience
of stress-tested borrowers, and the critical role of mortgage buyers in setting
market dynamics. As estate agents, understanding these shifts is crucial in
navigating the evolving market and advising clients effectively.
As a Boston
homeowner looking to sell, it's crucial to approach the market with a realistic
mindset. With only 53% of properties that come onto the market successfully
reaching a completed house sale and move, the odds of selling can feel like a
flip of a coin, (12
months to 23rd August 2024, of the 1,420,486 homes that left UK estate
agents books, 798,886 homes exchanged and completed, and 710,620 homes withdrew
unsold).
To ensure
you're on the right side of that coin, it's vital to set a competitive price
and present your property in the best possible light as this can significantly
increase your chances of securing a sale and achieving your moving goals.
In Boston and
similar towns and cities, where affordability and the search for space are
particularly relevant, the insights gained from this period of upheaval will be
invaluable. By staying attuned to these trends and anticipating the needs of
our Boston clients, we can offer informed guidance in a time of change.
In conclusion,
while the past four years have been challenging for the Boston and UK property
market, they have also demonstrated its underlying strength and adaptability.
As we potentially enter a more stable period, there is cause for cautious
optimism. By understanding the factors that have shaped recent performance, we
can better navigate the road ahead and continue to support our clients through
whatever challenges and opportunities the future may hold.
If you would
like to discuss anything about the Boston property market, please not hesitate
to call us at the office. 01205 365500