The property market is seizing up. Sellers are slashing asking prices, yet buyers remain glued to the sidelines, squeezed by mortgage rates that have climbed to levels not seen since before the financial crisis. Data from the Royal Institution of Chartered Surveyors shows new buyer enquiries falling for the fifth consecutive month, while the average time to sell a property has stretched to 67 days, up from 45 days a year ago. This is not merely a seasonal slowdown; it is a structural chill brought on by the Bank of England's relentless tightening cycle.
The central bank has jacked up rates to 5.25%, and the market is now pricing in a peak above 5.75% by year-end. Fixed-rate mortgage deals are being repriced daily, with the average two-year fixed deal now hovering around 6.7%. For a household with a typical £200,000 mortgage, that translates into monthly payments of nearly £1,400, up by more than £400 versus two years ago. The result: first-time buyers are pulling out of purchases, and existing homeowners facing refinancing are scrambling to lock in rates before they rise further.
The pain is concentrated in the most leveraged segments. The number of homes listed as 'under offer' but falling through has spiked by 30% year-on-year, according to property portal Rightmove. Sellers who need to move for work or family reasons are being forced to accept discounts of 5% to 10% off peak valuations. This is not yet a crash, but it is a correction that is gathering pace.
The Bank of England is caught between a rock and a hard place. Inflation is still running at 8.7%, more than four times the target. But hiking rates further risks tipping the housing market into a full-blown rout, which would destroy household wealth and confidence. The canary in the coal mine is the gilt market. The yield on the two-year gilt has risen above 5%, implying that bond vigilantes are demanding a higher premium for holding UK debt. This is a vote of no confidence in the Bank's ability to tame inflation without breaking the economy.
Chancellors past and present have long treated house prices as a political bellwether. A falling market means negative equity, falling consumer spending, and a recession that could be deeper than the Office for Budget Responsibility's current forecasts. The Treasury is already under pressure to intervene, perhaps by extending the Help to Buy scheme or offering mortgage guarantee programmes. But such measures would only stoke demand at a time when supply is constrained, pushing prices higher in the long run while doing nothing to address the underlying failure of housing affordability.
The alternative is to let the market clear. That means allowing prices to fall to a level where first-time buyers can afford to step in without taking on dangerous levels of debt. But that would inflict pain on homeowners who have borrowed heavily against inflated valuations, and on the banks that lent to them. The Financial Policy Committee is monitoring loan-to-value ratios and stress tests, but the real test will come when unemployment rises and borrowers start defaulting.
So what is the bottom line? The housing market is in a winter of discontent, and the Bank of England holds the thermostat. If it keeps raising rates, expect more ice. If it pauses, expect inflation to remain stubbornly high. There is no painless path. The only question is which set of vested interests the Bank is willing to disappoint. For now, the sellers are the ones feeling the chill.
