The past month has seen new buyer interest slow across the UK as rising mortgage rates dampen demand, according to property platform Zoopla.
The drop in new buyer interest has been evident across all parts of the UK but the largest declines have been seen in the South East (-40%) and the West Midlands (-38%).
Falls in buyer interest have also been seen in more affordable parts of the UK, with the North East and Scotland both seeing declines.
Richard Donnell, executive director at Zoopla, said: “New buyer demand has dropped quickly in the face of higher borrowing costs, it’s like the Christmas slowdown has come a month early.
“We don’t expect to see any impact on pricing levels between now and December and this will only start to materialise in early 2023.
“It takes several months for pricing to adjust in the face of weaker demand.
“The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4% with a modest decline in house prices of up to 5%.
“The labour market remains strong and the supply of homes for sale is below average creating a scarcity of homes for sale that will support pricing.”
Zoopla also found that house prices remain 8.1% higher than they were a year ago while the UK is on track to see 1.3 million sales this year.
However, the platform warned that almost 7% of homes have seen asking prices reduced by at least 5%, while the number of property transactions that are falling through is on the rise.
It is predicting a 5% decrease in house prices in 2023 with London being hardest hit by the decline.
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Sarah Coles, senior personal finance analyst, Hargreaves Lansdown:
“Buyers have fled the horrors of the housing market in their droves since the mini-budget, thanks to alarming interest rates and predictions that property prices are set to plunge. But this doesn’t necessarily mean sellers are safe to sell up and sit it out in the hope of a cut price deal next year either.
“A third of demand was squeezed out of the property market overnight when the mini-budget helped push rates into eye-watering and nose-bleeding territory. Zoopla estimates that if rates were to stay above 6%, we would see double-digit price falls that unwound an awful lot of price growth during the pandemic. However, mortgage rates have already started falling back slightly, and it says if rates settle at 4% or 5%, we’re more likely to see prices fall 5% in 2023.
“For a first-time buyer, this could feel like a lucky break, after such a long period of ever-increasing prices threatened to leave them stuck in a never-ending rental nightmare. However, a 5% fall would only erode an average of eight months’ worth of price growth from the property market, and for someone in Wales it would undo growth over just six months. If you had been weighing up a purchase since the start of this year, putting it off might still leave you worse off.
“Meanwhile, for anyone who has sold up recently and decided to wait before buying, this may feel like the reward for their patience, but it depends on their situation. For someone hoping to buy an average property for £296,000, it could mean the price might drop £14,800. However, this wouldn’t necessarily mean a saving.
“If they rented the average property for a year while prices fell, according to Rightmove it would cost them an average of £13,944. When you add in the cost of an extra move, and bear in mind that all of this cash would go to a landlord rather than paying down the mortgage, it feels like less of a win. Meanwhile, nothing in the property market is guaranteed, and we could see prices rise again before your rental period was over.
“Of course, by the same token, we could see prices drop further, so wait-and-see buyers could save significantly more. However, it’s a useful reminder of how difficult it is to base a property decision on an unreliable market.
“Nobody can really know exactly how far prices will drop, and you won’t be able to spot the bottom of the market until it’s too late.
“If you’re weighing up a possible purchase, the things that really matter are whether you need to move, whether you can easily afford the property and if you plan to stay there for a significant period. In all of the mental gymnastics you do to work out whether you should buy now or later, it’s important not to overlook the value being in the right home.”
