As I’m sure your aware, the current financial status of the UK as well as the housing market is completely up in the air at the moment. There are also a lot of misconceptions in the media regarding the property market as we speak, these issues that aren’t necessarily true or don’t match to the unique way of life on the Isle of Wight. The Island has always had its own sort of market and doesn’t seem to stay in line with the average market trends, therefore any ‘averages’ have always got to be taken with a pinch of salt.
House prices on the Island have shown a 0.35% increase throughout September so house prices are still on the rise, however we are starting to see a slow decline.
The demand for people wanting to sell on the Island is still on the rise, we’ve seen a 5.5% increase in new listings, and although the demand for properties is still high on the Isle of Wight, the amount of sales agreed in September saw a 2.3% decrease.

Fast evolving backdrop
The housing market has evolved rapidly over the summer. Banks have increased interest rates to bring down inflation. Rising energy prices are adding to the cost-of living. UK consumer confidence has hit an all-time low. Despite this challenging backdrop, these factors have not yet had a big impact on sales market activity.
The strong start to the year has carried the momentum into the summer. As we enter the autumn selling season, demand for housing continues to soften and is much lower than this time last year.
The UK government has responded with tax cuts and an energy price cap to support housing demand. Changes to stamp duty will boost some segments but the recent spike in borrowing costs are set to push mortgage rates higher.

Rising mortgage rates
Most new loans are at fixed rates and the cost to secure financing for these mortgages does not directly follow base rates. These costs have surged recently, and mortgage rates are on track to be more than double the rates at the start of 2022.
According to research, if mortgage rates rise from 2% to 5%, buying will be reduced by as much as 28%, assuming buyers want to keep monthly repayments unchanged. This will impact housing demand into 2023 for the 7 in 10 buyers using a mortgage unless they: put down larger deposits; or allocate more income to mortgage costs; or adjust their budgets, buying smaller property or looking to cheaper areas. A fourth option is to sit on the sidelines and wait.

Pandemic boost to prices
The impact of higher mortgage rates on market activity will be compounded by sizeable increases in house prices over the pandemic. The search for space and record low mortgage rates have resulted in the average value of a house increasing five times more than the average value of a flat over the pandemic.
Across many areas and property types, recent price growth has been the equivalent of four to five years, highlighting how much prices have jumped ahead.
There are no immediate signs of a major slowdown in price inflation. The average UK house price has increased by 8.2% or £19,650 in the past 12 months, although the quarterly growth rate is slowing.

Asking price reductions
We are starting to see early signs of price sensitivity from the scale of reductions in asking prices of homes for sale. Sellers want to maximise the value of their homes and when house prices are rising quickly, agents need to anticipate the strength of demand and price ahead of the market as needed.
There has been a clear upward trend in the proportion of listings which have had asking prices reduced by 5% or more over the spring and summer. The latest data shows that 6% of homes listed for sale have seen the asking price adjusted downwards. Right now, we don’t see any big variations in price adjustments by region or property type.
Any homeowner wanting to sell their home in early 2023 will need to price at the right level to ensure a sale. Sellers need to shift their mindset, giving more consideration to local market dynamics and the types of buyers for similar-sized properties in the local area.
While rising borrowing costs will see demand weaken in the coming weeks, we expect the ongoing pandemic impacts and cost-of-living pressures to continue to stimulate homeowners to want to move home. Those who are relying on taking a large mortgage will be most impacted by rising borrowing costs which is most likely to impact buyers in southern England. The changes to stamp duty will support demand in lower value areas.

Stamp duty changes
The key changes in the government’s recent mini-budget were to take all sales in England and Northern Ireland under £250,000 out of stamp duty (up from £125,000) while extending the additional relief for first-time buyers. The increase in this threshold takes 43% of homes out of stamp duty, primarily boosting regional markets.
First-time buyers account for 1 in 3 purchases and will not pay stamp duty up to £425,000 with a reduced rate up to £625,000. This change provides the greatest boost to in southern England who will get new savings of up to £10,000 per purchase.
While any changes that reduce the costs of buying a home are welcome, the changes in the budget do little to reduce the 90% stamp duty paid on homes over £250,000. This buyers’ tax remains a big cost for existing homeowners buying a property in the South East of England, particularly in the £500,000 to £925,000 price range, which accounts for a sizable proportion of sales. The budget was a missed opportunity to remove barriers to sale at this end of the market where higher mortgage rates will also have a greater impact on demand.