UK property prices have experienced a decline of 0.5% over the past year, marking the first drop in a decade, according to Zoopla. The property portal’s latest house price index reveals that buyers are taking advantage of the current market conditions and seeking further discounts. On average, buyers are negotiating £12,125 (4%) off the asking price of a property. The data highlights that discounts are at their highest level since March 2019, particularly in London and the south east of England. Zoopla stated that a “buyers’ market remains” as some buyers are unwilling to compromise on their preferences in light of higher borrowing costs, or are waiting for price falls and lower mortgage rates. The portal anticipates further “modest” declines in house prices in the next few months and the beginning of next year. Mortgage rates are also expected to ease in the coming weeks, although the decrease will be more significant in 2024.
Zoopla expects property sales to be 20% lower this year compared to last year, with a 28% decrease for those purchasing with a mortgage. The portal attributes this decline to households delaying their moves due to tougher affordability testing, a robust job market, and fewer forced sellers in the market. Zoopla predicts a small decline in property prices over the autumn, with prices ending the year 2-3% lower than in 2022. However, average prices are still expected to be 17% higher than in the first quarter of 2020.
Zoopla highlights that the modest reduction in house prices is not sufficient to boost affordability and support a recovery in sales volumes, even if mortgage rates fall below 5%. The impact of higher borrowing costs on pricing has been limited compared to the impact on buying power. House price falls have primarily been observed in southern England, where higher mortgage rates have had a greater effect on pricing. In London, property prices have fallen by 1.4% to £541,800 in the past year, while in the south east and east of England, prices have dropped by 1.5%.
In contrast, Scotland has experienced annual house price growth of 1.6%, with prices 40% below the national average. Discounts on asking prices are highest in London and the south east of England (4.8%) compared to the rest of the UK (2.8%). Zoopla asserts that demand for properties has improved in all regions of the UK, with a 12% increase in September, and the number of sales agreed has also risen.
Looking ahead, Zoopla predicts a gradual fall in mortgage rates in the coming weeks. However, uncertainty remains about inflation’s trajectory and how quickly it will return to the Bank of England’s target of 2%. The portal suggests that as mortgage rates approach 4%, more buyers will enter the market, supporting sales and pricing levels. Housing sales volumes are projected to reach 1 million in 2023, 20% lower than in 2022.
Richard Donnell, executive director at Zoopla, notes that the housing market is adjusting to a higher mortgage rate environment. He mentions that better news regarding inflation and the end of base rate increases has allowed lenders to start reducing mortgage rates, leading to a slight increase in demand for homes in September. However, buyers remain cautious and are waiting for better value for money and improved affordability before returning to the market.
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