House prices will fall 5% next year, says Zoopla: Price inflation falls to 7.8% in October driven by a sharp increase in mortgage rates
- Mortgage rates should fall back to 4-5% next year, the property’s website says.
- The average discount on asking prices has increased to 3%
- Demand fell 44% after the mini-budget on September 23
- Buyers are using rapid price inflation in the past two years to trade lower
House prices rose 7.8 percent in October, according to Zoopla’s latest house price index, as the real estate site predicts they will fall 5 percent next year.
It represents a slowdown in growth compared to last month, when Zoopla reported that house prices had risen 8.1 percent year-to-date.
Quarterly house price growth has slowed to 0.7% in November, the lowest rate since February 2020.
However, despite a clear change in market sentiment, none of the major cities or regions have seen price declines in the last three months.
Slowdown: UK house price growth fell to 7.8% in October according to Zoopla
Price growth has been affected by the unfortunate mini-budget in September, in which mortgage rates rose sharply as the cost of borrowing rose due to the sell-off of government bonds, known as gilts.
Since then, the market has been in a near constant state of flux. In October, two-year and five-year average fixed mortgage rates hit recent highs of 6.65 percent and 6.51 percent, respectively.
And while rates are now steadily falling, buyer demand is down 44 percent post-tax.
>> Consult the best mortgage rates for your circumstances with our mortgage search engine powered by London & Country – and find out how much you’ll actually pay using our new and improved mortgage calculator.
“There’s a big wait-and-see trend right now,” says Matt Coulson, a mortgage adviser at Heron Financial. “What you tend to find is that with the buying market, as soon as you get to December 1, it cools off and I think we’ve seen it a month earlier this year.”
New sales have also fallen, according to Zoopla, falling 28 percent compared to the same period last year, driven mainly by rising mortgage rates.
His outlook for 2023 assumes that mortgage rates will fall back to 4-5%, causing a 5% drop in house prices.
This means that 5-year fixed mortgage rates are likely to start 2023 at or just below 5%, a much better position for housing market prospects than current rates of over 6%.
However, compared to last year’s rates and early 2022, it still represents a material increase in purchase costs for the 7 out of 10 households using mortgages.
On the downside: Buyer demand is down 44% after September mini-budget
House prices fall: what are the forecasts?
Zoopla’s house price prediction is softer than some others’ estimates.
According to the Office for Budgetary Responsibility, home prices will fall about 9 percent between the end of this year and September 2024. The change, he says, will be driven by rising mortgage rates and tougher economic conditions.
Other analysts have previously forecast drops of up to 30 percent over the next two years.
Price drops mean that sellers are less likely to meet the asking price for their properties.
Post-pandemic market strength meant buyers had to pay, on average, 100 percent of the sales price or more on some occasions for much of the past two years.
The average discount required to make a sale has widened to 3 percent in recent weeks.
Zoopla expects average discounts to extend further as “we move into more of a buyer’s market.”
Richard Donnell, Zoopla’s executive director of research, said: “We still expect house prices to drop as much as 5 percent in 2023 with 1 million sales and mortgage rates below 5 percent.”
“But the number of ongoing sales will continue to be buoyant due to a variety of structural, demographic and economic factors.”
The analysis notes that strong home price growth has given buyers more room to negotiate the sale price. The outlook for 2023 will depend on how willing sellers are to adjust asking prices based on what buyers are willing to pay.
Zoopla added: “We don’t see any evidence of forced sales or the need for a big double-digit reset in UK house prices in 2023.”
At the same time, falling demand and sales, as well as more homes coming onto the market, mean that the stock of homes for sale continues to grow, albeit from a low base. Last month, the average real estate agency had 23 homes for sale.
This is the highest since January 2021, but almost a fifth lower than pre-pandemic levels.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic..
Banks and building societies continue to lend and mortgages are still being offered and applications accepted.
However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.
This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property
What if I need to re-mortgage?
Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.
Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.
Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.
What if I am buying a house?
Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.
Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.
How to Compare Mortgage Costs
The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.
You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.
Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .
> Consult the best fixed-rate mortgages that you could apply for