The housing market continues to adjust to higher mortgage rates, shown in fewer sales and widespread (but modest) house price falls.
People selling their homes are steadily becoming more realistic and agreeing to larger discounts. There seems to be a growing acceptance that what a home was worth a year ago is now little more than a memory.
There are many more homes on the market than in recent years, putting more price pressure on those selling. This is felt most for 3 and 4+ bedroom homes which have had the greatest supply increase.
We expect a relatively strong number of residential property sales for 2024 and house prices will continue to fall slowly.
Property sales holding up despite weak demand for homes
We measure buyer demand in the number of enquiries to estate agents for homes listed for sale on Zoopla. This dropped over the summer as mortgage rates increased, before picking up again in autumn.
Buyer demand is 10% higher than a year ago when the mini-budget hit. But it’s low compared to normal market conditions - sitting 13% lower than in 2019.
Meanwhile, there are 15% more agreed sales than a year ago and 5% more than in 2019. This suggests more realism from sellers. They’re dropping their price expectations to agree sales with buyers, who are in a strong negotiating position.
There’s also a sense amongst buyers that mortgage rates may have peaked. This is attracting those who delayed moving in the last year.
Many parts of Scotland and inner London are seeing residential property sale numbers hold up. Market activity here has lagged behind the rest of the UK in recent years.
The pipeline of sales is the lowest for 4 years but we still expect 1 million sale completions in 2023.
UK house prices fall 1.2% with most homeowners impacted
The average house price has fallen 1.2% in the last 12 months, with all price bands and locations in England and Wales impacted.
The East of England (-2.6%), the South East (-2.4%) and London (-2.0%) are the worst hit. Northern Ireland and Scotland are least impacted, with the average house price now +1.9% and +1% higher than a year ago.
The largest price falls are in Southern England where demand is falling and supply is growing. Many of these locations saw strong demand and price growth during the pandemic ‘race for space’. The biggest price falls at a postal area level are currently -4% in Colchester (CO).
It’s important to note that property prices remain well above what they were before the pandemic, even in the places with the biggest house price falls.
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Highest number of homes for sale in 6 years
A chronic scarcity of residential property for sale during the pandemic - particularly for 3+ bedroom homes - was a key driver of house price growth between 2020 and 2022.
We’re now seeing completely the opposite, with the highest number of homes for sale per estate agent for 6 years.
The average estate agency branch now has 31 homes for sale. This was just 14 in the middle of the pandemic.
This gives much more choice to people buying a home - and arms them with negotiating power.
3 and 4+ bedroom homes have seen the biggest increase in supply across the UK. There are more for sale than before the pandemic in every UK region except Scotland, the North East and the North West.
Largest discounts to asking prices for more than 5 years
The average discount is at a 5-year high, with property sales being agreed at 5.5% lower than asking price. This has increased from 3.4% in the first half of this year.
This 5.5% discount equals £18,000, which is even more than in 2018. That was the last time housing demand and price inflation weakened.
This shows more realism among people selling their home. Sellers are accepting ever-larger discounts as greater supply puts pressure on them to attract a buyer.
Seller discounts reach 5-year high of £18,000
Discounts to asking prices larger in Southern England
Affordability is most stretched in Southern England, which is giving buyers here the most negotiating power.
In turn, this is creating bigger discounts to asking prices - which average 6.1% or £25,000 - in London and the South East.
The average discount is 4.8% or £11,000 across the rest of the UK, which is still the highest in recent years.
Some sellers are accepting even bigger discounts. 1 in 4 sales agreed are more than 10% discounts off the asking price.
This trend reflects the fact that sellers are initially pricing their home higher than is achievable. As more sellers set their asking prices lower to achieve faster sales, discounts should return to normal levels of 3% to 4%.
London’s newfound value for money supporting home sales and property prices
High mortgage rates impact affordability the most in more expensive housing markets. This tends to reduce sales activity and cause house prices to fall.
However, house prices are not falling any faster in the highest value markets at present.
In fact, annual house price falls in London are lower than in adjacent commuter areas and in the wider South East.
While London’s house prices are high, the average value of a London home is just 8% higher than seven years ago. For the rest of the UK, this figure is 28% higher.
After slower price growth than the rest of the UK for 6 years, London homes are now better value for money. A steady return to office working is also supporting sales and pricing, with new sales rebounding more in London in the last two months than anywhere else.
These trends have resulted in positive 0.6% annual price growth in the EC postal area, which covers almost all of the City of London and parts of Islington, Camden, Hackney, Tower Hamlets and Westminster.
What’s going to happen in the housing market in 2024?
House prices have further to fall in 2024 but it’s positive news that the number of sales agreed is holding up. It shows that willing parties are ready to move, albeit with buyers getting bigger discounts.
5-year fixed mortgage rates have been falling below 5% but they need to drop further to bring more people back to the housing market. Rising wages and falling house prices are helping affordability, but they’re not enough to offset higher mortgage rates yet.
The number of homes for sale will start to decline this month. It’s a seasonal tactic to take your home off the market for Christmas and relaunch it in the New Year when buyer demand spikes.
If you’re serious about selling your home, be sure to set your asking price realistically. It will help you attract demand and agree a sale more quickly, especially when you’re competing with many other homes for sale.
Financial markets forecast that the Bank of England will start cutting rates around summer 2024. If this causes mortgage rates to fall further, there will be an improvement in demand and sales volumes later next year. Regardless, house prices will continue to fall slightly throughout the year.
House prices down: mortgage rates to follow
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Our House Price Index (HPI) is a repeat sales-based price index, using sold prices, mortgage valuations and data for agreed sales. The index uses more input data than any other and is designed to accurately track the change in pricing for UK housing. The HPI for November 2023 uses the most recent full data available - up to October 2023.