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House price growth falls to lowest rate since 2012

Nick Cheek
Written By:
Nick Cheek
Posted:
Updated:
30/08/2023

Elevated mortgage rates have continued to “weigh on” the housing market, with annual house price growth slowing to its lowest level since 2012 at 0.1 per cent, and buyer demand and agreed property sales falling in August, a report has said.

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% and the flow of new supply has fallen by 9% compared to the five-year average in August.

However, the new stock of homes for sales has grown by around 16% 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 year-on-year

Zoopla said that the number of homes being sold subject to contract is 21% 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% on the prior year. However, cash sales will decrease by around 1% 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% 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 7% was improving housing affordability despite higher mortgage rates.

Consequently, the difference between earnings and houses prices is narrowing and set to improve by 9% to 10% 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 5% 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 2% to -2% 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 1% in the past year.

Scotland, the North West and Yorkshire and the Humber saw house price growth of 1.7%, 1.2% and 0.9% 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 5% or more, renting is 10% 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.