Asking prices are already being revised downwards, it said, as sellers reprice for the season and adjust to reflect the hit to buying power.
Property search group Zoopla suggested higher mortgage rates mean buying power could be reduced as much as 28 per cent if interest rates hit five per cent by year-end.
It said higher value markets like London and the South East will be hit hardest by the mortgage pricing crunch, ongoing since swap markets reacted to the mini Budget last Friday, producing volatility lenders say has created a moving target its impossible to hit to price both responsibly and profitably.
The firm suggested the three options available to buyers include finding a bigger deposit, buying a smaller property or buying in a cheaper area.
Stamp duty changes announced last year will support activity in lower value markets and help first-time buyers in southern England, while the increase in the stamp duty threshold to £250,000 takes 43 per cent of homes out of stamp duty and boosts regional markets.
Asking prices take a hit
There are early signs that price sensitivity is emerging as six per cent of homes listed for sale have seen the asking price adjusted downwards by five per cent or more, the highest level since before the pandemic.
Zoopla said: “Re-pricing is a seasonal trend as we enter autumn, however, given the economic backdrop and factors including rising energy prices and rising interest rates – we believe this is a clear sign of a return to more of a buyers’ market after two years of a red-hot sellers’ market.
“For sellers, this means there is more of an impetus to shift their mindset when it comes to asking price, and consider local market dynamics more closely as well as the potential types of buyer for their property in the local area,” said Zoopla.
Pandemic drove exaggerated price growth
The pandemic drove Welsh property price inflation of 27 per cent jump in prices, equal to 10 years of pre-pandemic growth in just over two years, with something similar happening in the North East and Scotland largely due to below-average price growth since 2009.
While London has lagged the rest of the market in terms of annual growth rates, the average house value in London has increased by over £100,000 since the start of the pandemic.
By contrast, the average value of a flat in London has increased just 2.4 per cent. Flat growth is the weakest market segment in percentage terms in the UK as buyers prioritise space and increased working from home having a bigger effect on the London market.
Richard Donnell, executive director at Zoopla said: “Measures of housing market activity have been very resilient over the summer. A surge in home values over the pandemic and the rise of mortgage rates means we face a sizable hit to household buying power over the rest of 2022 and into 2023.
“While the recent changes to stamp duty are welcome, supporting activity in regional markets and the first-time buyer market in southern England, the increase in mortgage rates will erode much of the gains. Homeowners that want to sell their home this year need to price realistically and seek the advice of an agent on local market trends.”
Director of Benham and Reeves, Marc von Grundherr, said: “The market is now at a bit of a tipping point where house prices have continued to increase rapidly, but the reality for many buyers is that they are no longer able to stretch themselves financially.”