According to Zoopla’s House Price Index, in the last four weeks buyer demand has fallen by over a third compared to the average over the same period in the last five years.
The report added that the number of agreed property sales is down by 20 per cent and the flow of new supply has fallen by nine per cent compared to the five-year average in August.
However, the new stock of homes for sales has grown by around 16 per cent compared to the average in August the same period over the last five years.
The report continued that annual house price growth was at a “virtual standstill” and the lowest annual growth rate for 11 years.
Mortgaged sales expected to fall by nearly a third YOY
Zoopla said that the number of homes being sold subject to contract is 21 per cent down compared to last year, but one million completions are expected for this year.
This will be the lowest number of property sales since 2012 and equal to every household moving once every 23 years. Zoopla noted that it considered eight years to be the average.
This has been attributed to a fall in mortgaged buyers, with the number of mortgaged sales expected to drop 28 per cent on the prior year. However, cash sales will decrease by around one per cent compared to 2022.
Homeowners with a mortgage will wait for mortgage rates to improve before they move, Zoopla said.
The firm said that buy-to-let mortgage sales were also predicted to be lower this year, as investors in Southern England need to have equity of between 40 to 50 per cent of the property’s value to “get the numbers to stack up”.
Zoopla continued that there would be fewer first-time buyers in 2023 but “numbers will hold up to an extent”, with flexible working allowing them to live in cheaper areas and landlords selling rental properties.
Affordability ‘primary barrier’ to sales but wage growth promising
The company said affordability was the “primary barrier” to sales, but it said that average wage growth of seven per cent was improving housing affordability despite higher mortgage rates.
Consequently, the difference between earnings and houses prices is narrowing and set to improve by nine to 10 per cent over 2023. This will bring the house price to earnings ratio to 6.3x income, the most affordable this measure has been for 20 years.
Zoopla said that it expected property sales to recover over the next two to three years, with flexible working, a strong labour market and high immigration all encouraging house moves.
It added that it expected mortgage rates to fall below five per cent later this year, but warned it would be a “drawn-out process, relying on financial markets to evaluate how high interest rates need to be to bring inflation under control”.
“Any falls to mortgage rates are unlikely to impact the market and improve affordability further until at least the first half of 2024,” Zoopla explained.
House price growth is expected to remain with the plus two per cent to negative two per cent range for the “foreseeable future”.
North-South divide evident in-house price trajectory
Zoopla noted that there was a North-South divide in house price inflation, with every area in the South of England experiencing house price falls of up to one per cent in the past year.
Scotland, the North West and Yorkshire and the Humber saw house price growth of 1.7 per cent, 1.2 per cent and 0.9 per cent respectively.
It explained: “This pattern reflects the greater impact of higher mortgage rates on higher-value housing markets. Buyers in the South of England need bigger mortgages and deposits as well as higher incomes.
“This prices more buyers out of the market in the south, weakening demand and pushing prices down.”
First-time buyers finding it cheaper to rent than buy due to high mortgage rates
Zoopla said that the variation in house price growth was partially due to the “ability” of first-time buyers to buy at higher mortgage rates.
The company explained that first-time buyers accounted for one in three sales a year, but with higher mortgage rates of five per cent or more, renting is 10 per cent cheaper than buying, on average, despite high rental increases.
Zoopla explained that this had reduced first-time buyer numbers in the market and constraining house price growth.
The firm added that a renter buying a home they rent would find it cheaper in the six UK regions, along with Scotland and Wales.
It is more expensive to buy a home than to rent in all areas of Southern England and the Midlands, which could lead to house prices falling in the area.
