Most estate agents and removals firms – as well as others involved in the property sector, such as conveyancing solicitors – usually point to a buoyant housing market as a sign of prosperity. The more the housing market goes up in the UK, the more people move – or so traditional wisdom has often stated. However, this may not be the full story because there are other factors to take into consideration. Of course, firms that charge a fee based on a proportion of the value of a property will not want to see the predicted downward adjustment in the valuation of UK housing stock in 2023. Estate agents, for example, have a vested interest in boosting the market and pushing prices up where they can.
That said, this is not the case for removals companies who tend to charge differently. For example, if a removals firm has a set fee for a three-bedroom house, then it won’t matter to them if the seller has had to take a lower bid offer from their buyer to sell it. Although this might affect other professionals in the property sector, it shouldn’t impact so much on removals firms. The same goes for man and van drivers who tend to operate at the smaller end of the market, typically helping with student moves or taking on the relocation work for couples with perhaps just a single-bedroom flat to their name.
It is likely, however, removals companies – large and small – will be affected if the housing market plummets and people simply don’t want to move or – worse still – cannot afford to do so. As such, some removal firms are already planning for the coming year with some sort of housing slump in mind. Although no one really knows exactly how things will pan out in the removals industry, inward investment is currently low and likely to remain so for a few months in 2023 at least. Why? Because of the uncertainty about the housing market in the country more generally, removals firms are tending to economise as much as possible already. This might mean not making an investment decision on the purchase of lifting equipment, new vans or even taking on additional members of staff for the time being. This could be a mistake, however, because what the coming housing market changes may mean is that more people move rather than fewer, at least in the short-term.
So, what is going on and what do the latest indicators from the housing market tell decision-makers in removals firms?
Dropping Asking Prices
According to industry data published by Zoopla, the online property marketing firm, house and flat sellers have already started to lower their expectations when putting their properties up for sale. Although some parts of London – typically the ones that had seen the most growth in house sale prices for the last few years – began to see negative growth much earlier this year, according to Zoopla’s figures, the dropping of asking prices has since become a nationwide phenomenon.
In other words, the expected slump in the housing market that has been widely predicted by economists and government statisticians alike for the coming year is already upon us. Zoopla itself says that average house prices are likely to fall by as much as 5 per cent in the coming year. Other reputable sources say that the drop could be by as much as double that. In just the last few months, sellers have typically had to settle for a house price that was 3 per cent below what they had initially marketed it at.
Of course, there would have been some properties that bucked this trend. Nevertheless, the difference between what sellers thought they could get and what buyers were actually willing to pay was quite marked. No doubt, some sellers refused to drop their prices and their properties remain on the market. So, although the 3 per cent figure might set alarm bells ringing in parts of the property sector more widely, it shouldn’t necessarily worry removals firms.
The reason for this is that – by and large – sellers have been realistic. What they have done is place their property on the market and realised that to get the deal over the line, they’ve needed to acquiesce to their would-be buyer’s demand for a lower sale price. In other words, houses have still been sold and people are still, therefore, continuing to move and to require the services of removals firms on the whole.
According to Zoopla’s data, it is the Southeast of England where the greatest adjustments to sellers’ expectations have been detected. That is not to say that house prices have been stable elsewhere, of course, merely that the phenomenon has been most pronounced in the places with the highest population density. What does this tell us? Firstly, it could indicate that house prices in the Southeast have been over-inflated in recent years, a situation that was not sustainable as it was simply too costly for many young people on average wages to get onto the housing ladder. In addition, it could mean that there is more competition in the more densely populated towns and cities of the Southeast. In other words, where sellers have been competing for the attention of a reduced number of potential buyers, only those who have been willing to adjust their asking prices have gone on to secure sales.
Wider Economic Troubles
Many people have put the shift in the housing market in the country down to the disastrous mini-budget that was announced by the then Chancellor of the Exchequer, Kwasi Kwarteng. Although the government’s announcement led to an increase in state borrowing costs and a significant fall in the value of sterling, the statement Kwarteng made may not be the only factor in what is causing the UK housing market to undergo its current significant changes. This is because there is another factor at play which the government may or may not have made worse depending on your point of view. In a word, this factor is inflation.
Of course, inflation is something that has been reflected in the housing market in the UK for decades. Despite a changing trade position with Europe, the credit crunch and numerous other factors, UK house prices have – more or less – seen sustained growth for 20 years. However, this is coming to an end just as the price of commodities is going up. Of particular note is the cost of fuel, something that disproportionately affects removal companies, of course, given their need to keep vehicles on the road. Therefore, off-setting high fuel costs against lower rental and property prices isn’t likely to work out for most business models.
Worse still, the Bank of England only has one lever it seems willing to pull to stem commodity prices in the country – interest rates rises. The baseline lending rate has risen several times this year already. Of course, this means that mortgage rates have also seen significant hikes, not least for fixed-price mortgages. For many in the property sector, it is the rise in interest rates that is most significant and, what’s more, many predict the Bank of England will push them up still further in 2023.
Past Lessons
It is important to note that interest rates were very high in the mid-1990s, at levels far beyond what most economists predict for the next year, at least. Back then mortgage lenders tended to repossess properties when borrowers fell behind with payments. These days, lenders tend to encourage homeowners to downsize to something more affordable instead so they can pay back their mortgages with a lower level of subsequent debt. This may work out in which case removals firms can expect more and more trades in the housing market to take place even though they might be at a lower overall value. There again, some homeowners with unsustainable mortgage payments may look at a less buoyant rental market and decide that moving into rented accommodation is a more affordable way to live. This might not suit all estate agents but it shouldn’t negatively impact on the way removals firms operate.
What may put more of a brake on moving is when homeowners face negative equity. This will mean they are likely to sit it out until such a time that the housing market recovers making it affordable for them to sell up and be able to pay off their borrowing in one go. Of course, when an individual is in negative equity will depend on when they bought their property, at what price and the current valuation in their locality. Nonetheless, the more house prices drop throughout 2023, the more homeowners will fall into this category. As such, removals firms will need to keep an eye on what the market is looking like in 12 months’ time just as much as they are today with regard to future investment decisions.
In short, some volatility in the housing market – such as we are seeing already – isn’t likely to affect removals firms much in the short term because it will mean people move in order to place their household finances on a more sustainable footing. If there is a sustained downturn in prices or there is a bigger than expected drop in demand for homes than is currently being predicted, then removal companies are likely to feel the need to plan for a harsher period with fewer trades and consequent house moves.