UK home sales are expected to reach their lowest levels in over a decade due to the high cost of mortgages, dissuading potential buyers. According to a report by property website Zoopla, completed house sales are projected to decrease by 21% year-on-year, totaling approximately 1 million in 2023, representing the lowest numbers since 2012. The report also reveals that annual house prices experienced the sharpest decline in 14 years in July, dropping by 3.8% as a result of higher interest rates hindering individuals’ ability to obtain mortgage loans.
The report further estimates that house sales completed with mortgage financing will decline by 28% this year, while cash sales will only experience a marginal decrease of 1% in 2023. Currently, the average two-year fixed mortgage rate stands at 6.73%, and the average five-year fix is 6.21%, as reported by Moneyfacts. Some lenders have recently lowered their rates to regain competitiveness. However, according to Zoopla, mortgage rates must fall below 5% before seeing an increase in interest in moving homes during the second half of 2023.
Zoopla’s research also indicates a 34% decrease in demand for homes over the past four weeks compared to the average demand during the same period over the last five years. Despite the recent growth in rental rates, the report suggests that the average cost of renting is 10% cheaper than making mortgage payments.
The housing market in southern England, where average house prices are highest, is experiencing the greatest impact from affordability issues. Buyers in this region require larger mortgages, bigger deposits, and higher incomes to afford properties. On the other hand, more affordable areas, including parts of Scotland, are witnessing relatively stable levels of market activity.
Zoopla predicts that these trends will persist throughout 2023 and into 2024. However, there is a glimmer of hope as affordability gradually improves compared to earnings. Wages have increased by 7% in the past year, and the report projects that the UK’s house price-to-earnings ratio will align with the 20-year average, reaching 6.3 by the end of this year.
Interestingly, the report highlights that affordability has improved the most in London, where the price-to-earnings ratio is expected to reach single digits for the first time in 11 years. This improvement is due to slower house price growth compared to earnings growth in the city. It is worth noting that the average property price in London is £542,400, significantly higher than £267,000 in Edinburgh, £253,900 in Cardiff, and £167,900 in Belfast.
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