Residential sales market outlook: Key drivers

There are several key factors which are expected to influence market activity and sentiment in the residential sales market over the near term and longer.

Some of the key issues we feel could make an impact next year are listed here:

Lending environment and affordability

The more near-term impact on the market could be the shape of mortgage availability and rates in the next 12 months.

• Mortgage availability: Recent efforts by the Financial Conduct Authority (FCA) to encourage lenders to refine affordability assessments, including easing stress tests and potentially offering higher loan-to-income (LTI) ratios, are expected to incrementally increase access to mortgage finance, particularly for first-time buyers, throughout the next year.
• Interest rate trajectory: it is widely expected that there will be at least one further official interest rate cut within the next 12 months which would clearly help reduce the cost of borrowing. This movement will improve overall affordability and encourage a wider cohort of prospective buyers into homeownership.

Economic and political stability

More generally, economic and political stability always improves consumer confidence. Increased certainty whether it be domestic stability or even wider global geopolitical issues which will hopefully ease next year, will encourage people to make larger financial commitments such as buying and selling homes. Improvement in this area will stimulate market activity and transaction volumes.

Government legislation

Government proposals currently under consultation aim to reform and expedite the home buying and selling process. These changes are mainly focused on speeding up transactions and reducing the rate of fall-throughs. Anything which will help facilitate smoother, quicker and less onerous transactional administration will certainly give households increased confidence to buy and sell homes and this could therefore stimulate activity.

Long-term supply challenges

The long-term health of the housing market fundamentally relies on addressing the persistent supply issues. While resolving the complex challenges facing the construction and building sector requires extensive action, progress on recommendations, such as those from the new towns taskforce, would represent a positive step toward increasing the rate of new home completions.