House prices dropping at most dramatic rate for a decade

House prices have begun dropping at rates not seen in over a decade impacting four in five local housing markets, the Zoopla latest House Price Index has revealed.

The impact of higher mortgage rates and a rise in the cost-of-living coupled with weaker demand and reduced buying power have resulted in a rapid cooling of house price growth from +9.2% a year ago to -1.1% today – the most dramatic slowdown in price growth since 2009.

Previously concentrated in Southern England, house price falls are now impacting lower-value markets with four in five housing markets registering annual house price falls – up from one in 20 just six months ago.

COMMUTER TOWNS

The largest annual falls have been recorded in commuter towns surrounding the capital and the South East with Colchester seeing falls of -3.5% and Lution -3.3%.

Of the one in 5 markets registering annual house price growth, the highest growth rate is +3.6% in Halifax, Yorkshire.

Meanwhile first-time buyers are on track to be the largest buyer group in 2023, closely followed by cash buyers who will account for one in three sales this year.

Richard Donnell, Executive Director at Zoopla, says:  “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.”

LONG-TERM VIEW

Karl Knipe, Director of London estate agent Kings Group, adds: “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.”

Tom Bill, head of UK residential research at Knight Frank, says: “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.”

AUTUMN BOUNCE

“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.”

And Nigel Bishop of buying agency Recoco Property Search, says: “The UK’s property market, particularly at the higher end where properties cost a minimum of £1mn, has seen a noticeable boost in cash buyers over the past year.

“This increase has been driven by less favourable interest rates and, with rates unlikely to decrease any time soon, will continue in 2024.

“The presence of more cash buyers could create further challenges for buyers who are reliant on a mortgage as some sellers favour cash transactions for their chain free nature which often results in an overall faster sales process.”