"Almost a quarter fewer people will move home due to greater uncertainty and less buying power. "
- Richard Donnell - Zoopla
4 in 5 local housing markets have registered annual house price falls, with weaker demand and reduced buying power resulting in a rapid cooling of house price growth from +9.2% a year ago to -1.1% today.
This is the most dramatic slowdown in price growth since 2009.
Previously concentrated in Southern England, house price falls are now impacting lower-value markets with 4 in 5 housing markets registering annual house price falls - this is up from 1 in 20 just six months ago.
The scale of house price falls is limited to low single digits with the largest annual falls registered in commuter towns around London and across the South East e.g. -3.5% in Colchester and -3.3% in Luton. Of the 1 in 5 markets registering annual house price growth, the highest growth rate is +3.6% in Halifax in Yorkshire.
Currently, the number of housing sales is feeling the impact of higher mortgage rates more than house prices - with a 23% reduction in housing sales in 2023 vs 2022.
Zoopla anticipates housing transactions to stay flat at 1m in 2024, although this could improve if mortgage rates drop back towards 4% over the first half of 2024. This would support a modest rebound in activity in the first half of 2024 as people who have delayed moving decide to return to the market.
Cash remains king
First-time buyers are on track to be the largest buyer group in 2023, closely followed by cash buyers who will account for 1 in 3 sales in 2023. This is an increase from an average of 1 in 5 sales over the past 5 years. Many cash buyers have room to be more realistic on price as they are also mortgage-free sellers who have lived in their homes for many years. Their realistic outlook on pricing will also support the number of transactions in 2024.
Looking to 2024, cash buyers will remain an important buyer group alongside first-time buyers who will continue to be pushed into buying by the continued, rapid growth in rents.
Upsizers are the group most sensitive to higher mortgage rates as they tend to buy bigger homes which require larger mortgages. The risks of big price falls are abating as a reason not to move but higher mortgage rates remain the most important factor.
Lower mortgage rates would bring more upsizers in the market in 2024 and support overall sales volumes. With mortgage rates looking like they will stay higher for longer, upsizers need to be more flexible and what they want to buy and where to unlock that next move.
What’s next for the housing market?
Looking ahead, housing affordability needs to improve to price more buyers back to the market and support more sales. UK house prices have fallen less than we expected over 2023. Together with 5% mortgage rates, it means purchasing a property still remains relatively expensive for an average household.
To see a meaningful reset when it comes to affordability, house prices will need to fall further as incomes increase (assuming mortgage rates remain broadly unchanged for the first half of 2024).
Assuming mortgage rates drop to 4.5% by the end of 2024, Zoopla expects that house price growth will remain negative with prices down 2% next year. A faster fall in mortgage rates towards 4% would boost sales activity rather than house prices.
Richard Donnell, Executive Director at Zoopla comments: “House prices have proven more resilient than many expected over the last year in response to higher mortgage rates. However, almost a quarter fewer people will move home due to greater uncertainty and less buying power.
“Modest house price falls over 2023 mean it’s going to take longer for housing affordability to reset to a level where more people start to move home again. Income growth is finally increasing faster than inflation but mortgage rates remain stuck around 5% or higher. We believe that house prices will post further small falls, averaging 2%, over 2024 with 1m home moves.
“Slow house price growth and rising incomes over the next 12-18 months will improve affordability to levels last seen a decade ago, creating the potential for a rebound in home moves as consumer confidence returns."
Tom Bill, head of UK residential research at Knight Frank, said: “A strong jobs market is normally a positive sign for the UK housing market but not this year. Wage growth has kept both inflation and interest rates high, with mortgage rates having tripled in three years.
"It means the seasonal autumn bounce has failed to materialise for the second year running. The major difference in 2022 was that there was a quick fix in the shape of a new Prime Minister. Stubborn inflation over the summer sent rates higher again and activity levels will only improve this time round once buyers come to terms with higher borrowing costs and sellers with lower asking prices.
"Furthermore, as the general election approaches, attention is beginning to shift away from the Bank of England and towards Westminster for those attempting to guess the market’s trajectory. Housing market activity tends to stutter before elections.”
Karl Knipe, Director of Kings Group said: "It's important to take a long-term view when buying a house.
"Very low single-digit price rises or falls make no difference when buying a home that you will live in for many years - it shouldn't be relevant.
"The forecasts are showing that 2024 looks like it will be a similar year to 2023, so if you want or need to move and buy your own 'castle' - now is the time to do your homework and put yourself in the best position for the new year knowledge wise, financially wise and ability wise. This will ensure you're set up to move quickly if you find a home that suits your needs."
Nathan Emerson CEO at Propertymark comments: “Many first-time buyers and cash buyers are still entering the market, as the Zoopla House Price Index shows they make up 2 in every 3 buyers. It is extremely positive to see this demographic having the confidence and ability to step into the housing market once again. It is especially encouraging to see those who are maybe buying a property for the very first time.
“Currently, cost-of-living related issues continue to impact the housing market overall and sales in some segments remain dedicated, however rising incomes should help boost housing affordability across the next twelve months. Propertymark remains keen to see a continued fall in inflation rates and for this to translate into reduced interest rates to fully reignite sales volumes.”