House prices are expected to stay broadly static for the rest of 2023, which is good news for buyers.
Some 18% of homes currently listed for sale on Zoopla have had the asking price cut by 5% or more.
Price reductions typically come 8 weeks after the first listing as sellers try to boost interest.
Further interest rate rises may mean mortgage rates rise again
Higher-than-expected inflation data has increased the probability of further interest rate rises in 2023.
However, banks have mortgage funding available at the current rates for the next 1-3 months, meaning rates for new borrowers are unlikely to edge higher immediately.
More expensive mortgages reduce buying power and demand for homes, which in turn puts a downward pressure on house prices.
That said, the housing market is holding up and the number of new sales agreed over the last 4 weeks is 11% higher than the 5-year average for the same period.
As many buyers are also selling, the number of homes for sale is currently up 16% on the 5-year average.
See last month’s House Price Index report
Landlords selling up means more homes available
Some landlords are selling their properties in the face of higher mortgage rates.
Our data shows some 1 in 10 (11%) of homes currently listed for sale were previously rented out.
These ex-rented homes have an asking price that is 25% lower than ex-homeowner properties (£190,000 v £250,000), which makes them appealing to first-time buyers.
Affordable areas and London proving popular with buyers
In Scotland, the North East and London, demand and sales are running at 10% above the national average.
However, in the South and Midlands - where house prices shot up over the last 3 years - demand is down as higher prices, higher mortgage rates and the cost of living impact buyers.
That said, there are still active buyers in these markets, shown by above-average sales, albeit at a lower level.
House price growth over the last 7 years has ranged from just 12% in London to 47% in Wales.
Meanwhile, average earnings have increased by 30% over the same period.
Areas where house prices have grown more than earnings are seeing reduced demand, while those where house price growth is slower are proving more popular.
While London is not an affordable market (homes here cost twice the national average) its affordability has improved over the last 7 years due to below-average price inflation.
This now makes the capital better value for would-be buyers, especially those looking to buy flats, which haven’t gone up in value since 2016.
Increased migration into the UK is also likely to be supporting above-average demand and sales rates in London.
What will happen if mortgage rates go up again?
Mortgage rates falling back towards 4% in the first half of this year has supported market activity.
However, as concerns over inflation rise, economists are predicting further bank rate rises this year, which implies mortgage rates may increase again in the near term.
Robust levels of housing activity over the last two months prove that 4% to 4.5% mortgage rates are generally manageable for new homebuyers, despite them being more than double the lows of late 2021.
However, higher living costs have also been eroding spending power.
Our assessment is that mortgage rates of 4-5% are consistent with house price growth of +2% to -2% and around 1 million home sales a year, as long as we continue to see a strong labour market.
The more rates move above 5%, the greater the impact on buying power and the more house prices will come under downward pressure.
Banks increasing their affordability tests further for new borrowers will add pressure.
Much depends on the financial markets and their assessment of the outlook for short-term interest rates.
What seems likely is that the build-up of market momentum this spring will weaken in the second half of the year if mortgage rates edge higher.