- Despite a 20% drop off in buyer demand over the last two months the market remains on course to achieve one million sales this year
- Rising mortgage rates have dented buying power, but the fewer buyers who remain in the market are more committed to moving home. An acceptance from vendors that asking prices must be discounted to get sales over the line is helping to keep the market moving. The risk of negative equity remains low
- House prices will avoid any major re-correction and are still on course to fall by up to 5% by the end of the year, subsequently tracking at plus or minus 2% over 2024
- Instead, volumes and liquidity are expected to take the hit with a 23% year-on-year decrease in sales to one million – picking up to 1.1 million over the next two years
Keeping the housing market moving
The findings of Hometrack’s latest House Price Index Report were delivered by Richard Donnell, executive director for research, during Zoopla’s July market webinar.
Helping to maintain market momentum is the diversity of motivating factors driving buyers to buy. “There are more motivations for people to move than we’ve ever seen before,” said Donnell.
The factors included; an ageing population who need to move to more suitable homes, the cost of living crisis and the difficulty managing a home’s running costs, an increased number of people retiring post-pandemic, work from home flexibilities giving households more choice over where they live, the rapid rise in rents encouraging tenants to consider buying and record immigration into the UK.
Asking price reductions increasingly needed to get sales over the line
To get sales over the line, vendors are giving up some of their pandemic price gains. Unlike the hot market of 2021 and 2022, when sellers took barely any discount, the gap between the asking price and offer accepted has widened.
Hometrack analyses the proportion of asking prices being achieved to give a sense of how much pressure house prices are under.
During the third week of June, the latest date in the analysis, the proportion of buyers accepting more than a 5% discount off their asking price reached 43%, its highest level since a brief spike in 2020 but much more akin to the market dynamics of H2 2018 and H1 2019.
The proportion of sellers accepting a discount of 10% or more was 15%, which has changed little since the start of the year.
Donnell says there’s nothing in the current data to suggest that price falls or market activity will slow at a stronger pace than currently expected.
North and south divide in housing market performance
Annual house price inflation has slowed to +0.6% but that’s not the picture across the whole country.
“There’s a big regional story going on here,” said Donnell. “Higher mortgage rates hit markets where house prices are higher, mortgages and deposits are bigger and the income needed to buy is higher. The biggest fall we’ve detected is in Southend, at -2.2%. While the level of falls is not significant, there’s a real contrast between the classic wash to the Bristol Channel view of the south of England, where the income and house price divide is higher, and further north to more affordable areas such as Wolverhampton, Oldham, Halifax or Falkirk,where house prices are still rising by 3% or more.”
The increased segmentation and stratification of the housing market poses a challenge for lenders that run national credit and product policies. But it also offers them the opportunity to think in a more granular way, at a sub-regional level, if they want to drive lending growth.
Looking ahead at housing market performance
With mortgage rates at their current level and the inevitable hit to buying power, Hometrack expects a repeat of the subdued activity levels seen in Q4 2022 and Q1 of this year.
The rise in mortgage rates appears close to peaking and is likely to return to the 4% to 5% window for 75% LTV loans this autumn. The key risk is higher rates for longer. Modest house price falls are expected to continue in H2, with values forecast to be up to 5% lower by the end of the year.