Mortgage rates were on course to rise between 4-5% before the mini Budget in 2022, and this coupled with the cost-of-living crisis, had weakened demand in the summer months.

However, according to Zoopla, the mini Budget added 1% to mortgage rates so they hit 6% for a two-year fixed deal. This 1% increase represents a 25-30% hit to the buying power of borrowers using a mortgage.

Zoopla said homeowners were continuing to express an interest, but heightened uncertainty had dissuaded some. It added that demand for homes was at its weakest levels since the pandemic started but was above 2019 levels.

The number of new sales agreed has also fallen 15% over the last week.

There has also been a spike in asking price reductions due to higher borrowing costs and weaker demand.

House price fall this year unlikely

Zoopla said that house prices are “unlikely” to fall this year despite the hit to demand. However it suggested that surveyors were more likely to reduce value in the “face of greater uncertainty and reports of deals falling through”.

The property portal said that some sellers could accept price reductions to get sales over the line, which could then be passed along the chain.

“Those would-be sellers who need a certain sale price to unlock their next move will likely step back from the market in the short-term and reconsider their position in early 2023,” it added.

Zoopla said that “large downward moves in asking prices” would need to be seen before the market sees record price falls.

It explained: “The reality is that the rest of 2022 will be about closing out the pipeline of sales and minimising fall-throughs, rather than seeing a lot of homes come to the market for sale.”

Zoopla said that there was a “huge equity cushion” to absorb price falls, and a nationwide fall in 15% in house prices would lead to “very few cases” of negative equity.

“This highlights how the housing market has become increasingly equity driven and is much less dependent on high loan to value (LTV) borrowing over 90%”. it said.

Demand will continue for select buyers

The final three months of the year are usually quieter for new buyer activity as they make up less than a fifth of new buyer demand over the typical year.

However, Zoopla said it expected “continued demand from a smaller group of buyers who are committed to proceed”.

But it added that sellers and buyers need to be “flexible and realistic given the shifting economic backdrop”.