House prices are projected to decrease by 5% over the next year, causing the gap in price growth between the south of England and the rest of the country to widen. According to Zoopla’s latest house price index, price growth was only 0.6% in the 12 months leading to June due to higher mortgage rates leading to a significant drop in demand. This is a significant decline from the 9.6% house price inflation recorded in June last year. Despite the expected decrease, property values would still be 15% higher than pre-pandemic levels.
Zoopla predicts that house prices will continue to lag behind the growth in price inflation and earnings as the market adjusts to higher mortgage rates. The data shows that price declines are primarily concentrated in the southeast of England, with some areas experiencing declines of over 2%. In contrast, other areas of the country continue to report growth of over 3.5%.
The fluctuating demand for homes is influencing price changes. Demand increased in the first half of the year as mortgage rates decreased from the highs seen in October. Richard Donnell, executive director of research at Zoopla, noted that while demand has weakened compared to 2019 levels, there are still committed sellers and buyers in the market.
However, demand has rapidly decreased in the second quarter as mortgage rates have risen again. Zoopla expects rates to reach their peak soon and return to around four to five percent in the autumn. Currently, the average two-year fixed rate is 6.83%, while the average rate for a five-year loan is 6.34%. The increase in mortgage rates over the past two months is due to disappointing inflation data and the possibility of further Bank of England base rate rises.
Despite the anticipated peak in rates, Chris Druce, senior research analyst at Knight Frank, warns that fixed-rate mortgages being renewed at higher rates will continue to impact the UK property market negatively. Knight Frank predicts that house prices will decline by 10% for the rest of this year and the next.
Additionally, the market is seeing a shift in the type of properties buyers are interested in, with higher mortgage rates limiting affordability. Sales of three- and four-bedroom family houses have been more significantly affected compared to smaller, more affordable homes, with a 41% decrease over the past four weeks.
Buyers and homeowners should explore their options and consider securing a mortgage as soon as possible. This Is Money’s best mortgage rates calculator powered by L&C can help find deals that match specific mortgage and property values. It is essential to compare rates, speak to a mortgage broker, and be prepared to secure a rate before experiencing more expensive arrangement fees.
In conclusion, while house prices are expected to decrease, the market remains unpredictable due to fluctuating demand and mortgage rates. Homeowners and buyers should carefully consider their options and be aware of the potential for falling house prices.
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