With near-record inflation denting consumer spending power and high interest rates driving up the cost of mortgage repayments, you may well be thinking about holding off on buying a home.
If that sums up your current situation, you’re not alone. The latest Zoopla House Price Index (HPI) has found fewer people have been looking to move house in the first few weeks of 2023 than at any time since January 2018.
Despite Zoopla and other HPIs - such as Rightmove and Halifax - finding the rate of house price growth is falling, and predictions that interest rates will stabilise and possibly fall in 2023, homes remain unaffordable in many parts of the UK. First-time buyers have been particularly affected, with earnings struggling to keep up with the housing market in many areas.
But despite the so-called Covid-19 ‘rush for space’ seeing demand rocket over the last three years - especially for properties outside of London - Zoopla has found a significant annual decline in the wake of cost of living challenges. It says there are 50% fewer homebuyers on the market compared to February 2022.
So, what else did Zoopla find in its latest HPI - and what does it think will happen in 2023?
How does the Zoopla House Price Index work?
Digital estate agency Zoopla bases its house price index on several different data inputs, including sold prices, mortgage valuations and agreed sales.
It means it is covering more bases than Rightmove (which is based on house asking prices), as well as Halifax and Nationwide (who base their findings on mortgage offers). But it is also more city-focused, basing its data on 20 cities containing 35% of the UK’s housing stock and 43% of its total value.
What does the latest Zoopla House Price Index show?
The latest Zoopla HPI for the four weeks to 19 February 2023 was released on Tuesday (28 February).
It showed a significant decline in annual rate of value growth (i.e. house prices are rising, but are doing so at a lesser rate), with property prices now 5.3% up year-on-year compared to the rate of 8.6% seen in December 2022. The online estate agency reported that sellers in England, Wales and Northern Ireland are having to take a 4.5% hit on asking prices in order to achieve a sale - Scotland operates a different home-buying system based on ‘offers over’ an asking price.
The discounts on offer are an average of £14,100 per agreed sale and mean those seeking to sell homes are likely to be forgoing a third of the house price gains they have made during the Covid-19 pandemic. Zoopla says 40% of the properties listed on its website have had their asking price reduced.
Despite this good news for buyers, Zoopla has found demand is 50% down on a year ago and the volume of agreed sales is 24% lower. It should be noted that 2022 was an extraordinary year for the housing market. So the current rate of buyer demand is considered to be relatively normal - tracking 8% above the average for the three years leading up to the pandemic (2017 to 2019).
But it is still somewhat surprising given the housing stock available is 60% above where it was in February 2022 - a typical estate agent currently has 24 homes on offer compared to just 15 last year - and buyer spending power has recovered as a result of mortgage rates falling around two percentage-points from their highs in the wake of the mini budget (although they remain hundreds of pounds more expensive per month compared to last year).
Zoopla says it believes the slowdown in demand is likely to be as a result of buyers having more choice, greater wiggle room with which to negotiate on the asking price, as well as heightened cautiousness with regard to spending.
“Greater realism on the part of sellers is supporting housing market activity in the face of higher borrowing costs,” said Richard Donnell, executive director at Zoopla. “Many homeowners are sitting on sizable house price gains made over recent years and have more room to be flexible, accepting offers below the asking price.
“Discounts to asking prices have widened and while 4% to 5% discounts are manageable, if these were to widen further then this would point to a greater likelihood of larger house price falls.”
How do house prices compare across the country?
While Zoopla’s research has shown sales are down overall, it has found major regional variations.
In ‘more affordable’ housing markets, such as the North East and Scotland, agreed sales are holding up “ahead” of the pre-pandemic period. Meanwhile, in the Midlands and southern England, they are up to 9% lower compared to pre-Covid times. Given houses in the South tend to be more expensive, Zoopla says continuing high mortgage rates are having a greater impact on purchasing power than elsewhere in the UK.
This situation is being mirrored in the annual rate of house price growth across the country. In London, prices are 2.5% up against the previous year, while in Wales they are 7.1% up. Here are where the biggest differences in the annual rate of growth are being seen:
Biggest annual growth increases (%)
- Oldham: average price is £166,500 (+8.9%, or +£13,670)
- Wolverhampton: £195,900 (+8.8%, or +£15,820)
- Dudley: £218,700 (+8.5%, or £17,040)
- Worcester: £291,600 (+8.2%, or £22,120)
- Wigan: £159,400 (+7.9%, or £11,640)
Lowest annual price changes (%)
- West Central London: £755,400 (-1.4%, or -£11,090)
- West London: £764,300 (+0.6%, or +£4,320)
- South West London: £720,200 (+1.3%, or £9,520)
- North West London: £638,000 (+1.5%, or +£9,250)
- Aberdeen: £161,400 (+1.7%, or +£2,650)
What is Zoopla’s housing market forecast?
Zoopla has tended to be one of the more optimistic outlets when it comes to its forecasts of how house prices will fare in 2023. While other HPIs have predicted significant falls in prices this year, it has predicted a much more modest decline.
It has stuck to this outlook with its latest HPI forecast. It predicts “small” month-on-month reductions in prices for the next two to four months, with the annual rate likely to move into a decline of 2% to 3% by the summer.
“We believe the market remains on track for a soft landing in 2023 with modest price falls of up to 5% and one million housing sales,” Richard Donnell said.
His view has been backed by British estate agency chain Chestertons. Its head of sales Matthew Thompson said: “As we are approaching Spring, which is known as the busiest period for the property market, and the Bank of England shared a more positive view on the economy, we are expecting more sellers to enter the market.
“This increase in properties being put up for sale will inevitably lead to a more balanced market environment and allow buyers to negotiate the asking price to a certain degree.”