Zoopla has reported that the UK’s current house price inflation has slowed to 7.8%, the slowest rate of growth recorded since November 2021 following October’s mini budget which then saw the property market stall.
The firm’s latest report says the housing market is transitioning from an unsustainably strong market to one more balanced, albeit with affordability challenges for homebuyers most reliant on mortgage finance and a weaker economic outlook for 2023. Buyer demand is -44% YoY with a slower decline seen in sales at -28%, which are now back to pre-pandemic levels.
Property sales are still being agreed by those who still have low rate mortgage offers and amongst certain buyers including would-be first-time buyers facing steep rent rises or buyers less reliant on mortgages.
New sales have fallen by up to 50% in the previous market hotspots and high-value areas where higher mortgage rates will hit buying power hardest such as the mid to upper price bands in Southern England (excluding London), East Midlands and Wales. Sales have fallen less in more affordable areas and London where market conditions have been weaker.
More homes are coming to the market for sale with the total stock of homes available up 40% vs 2021 – but still almost 20% below pre-pandemic levels and rising supply will boost choice for consumers.
Zoopla said house price inflation is losing momentum fast. The headline, annual rate of UK growth, at 7.8%, is the lowest since February 2020. Looking at more recent trends over the last quarter growth rates are running at less than a third of the last year. However, Zoopla’s data is yet to record price falls over the last three months across UK countries, regions or major UK cities. The firm expects price growth to dip into negative territory in H1 2023 as the market adjusts to weaker buying power and concerns over the economic outlook.
Sellers are now having to accept discounts to asking prices in order to achieve a sale – a trend that has become more apparent in recent weeks. The average price achieved in recent weeks has been 3% below asking price when for much of 2021 and the first half of 2022 it has been 0%. Zoopla expects discounts to widen further in 2023. History shows that when discounts reach 5-6% this points to flat to falling prices, it said.
Falling demand and sales means new and current sellers are being forced to set asking prices at more realistic levels to help secure buyer interest. One in 10 homes (11%) have recorded a price reduction of 5%+ (although this remains below 2018 levels) and one in 4 (25%) have experienced a price reduction of any size since 1 September 2022.
Asking price reductions are greatest in Southern England, where sales volumes have fallen the most with almost one in three homes in the South East and East of England reducing asking prices to attract more demand.
The outlook for mortgage rates is the most important factor for home buyers and those planning to move in 2023. The underlying cost of five-year fixed rate mortgages have fallen back over the last month and signals mortgage rates closer to 5% as we start 2023.
Looking ahead, Zoopla expects sales volumes to drop back to 1 million over 2023 (from 1.3m in 2022) with house price falls of up to 5%, concentrated in the high-value markets most sensitive to higher borrowing costs
Richard Donnell, executive director at Zoopla, said: “The housing market is adjusting to a reset in the level of mortgage rates but the likelihood of double digit house price falls at a UK level remains low.
“While the outlook for house prices is weak, we see a shift to more needs driven motivations to move in 2023 and beyond which will support sales volumes. Ongoing pandemic impacts, increased labour market flexibility plus more retirement will continue to encourage moves. Cost of living pressures will compound these trends encouraging home owners to consider their next move. The rapid growth in rents, which shows little signs of slowing, will add to cost of living pressures and add continued impetus to first time buyer demand.”
