According to Zoopla, the number of home sales completed this year is expected to fall by a fifth compared to 2022, the lowest since 2012.
A total of one million sales are expected to be completed this year, equivalent to the average household move every 23 years.
The low transaction volume is due to almost a third fewer mortgage sales as a direct result of higher interest rates.
The 50-year average of real estate transactions is 1.26 million – and this year will fall well short of that figure.
On track for 1 million sales: Sales are expected to decline 21 percent in 2023, the lowest since 2012
According to UK Finance, purchases by first-time buyers and movers fell by 28 and 30 per cent respectively in the three months between April and June this year compared to the same period last year.
Existing homeowners who take out a mortgage typically account for a third of annual sales, although this group tends to wait until the mortgage rate outlook improves.
As a result, the transaction volume for larger houses is significantly lower than in the previous year.
According to Zoopla, new sales of three- and four-bed homes fell by up to 40 percent in July compared to the same period of the last five years.
In the meantime, the sales of smaller – and therefore more affordable – houses have declined less.
One market segment that has caught on, however, is cash buyers, who will account for more than one in three sales by 2023, according to Zoopla.
Cash sales are forecast to fall just 1 percent this year compared to 2022 levels.
Higher mortgage rates weigh on market activity: according to Zoopla, home demand is 34% below average compared to the same period of the last five years (2018-2022).
What impact does this have on property prices?
Market activity remains well below the activity level of the last pandemic years.
Looking over the last four weeks, Zoopla’s leading indicators show that home demand is 34 percent below average compared to the same period of the last five years.
But while demand and the number of real estate transactions have slumped this year, real estate prices have remained remarkably stable, remaining essentially at last year’s levels.
According to Zoopla home price indexes, the average price rose just 0.1 percent in the 12 months to July – the lowest annual increase since 2012.
According to Zoopla, its indices are based on the largest underlying data sample of any UK house price index. It uses sales prices, mortgage ratings and agreed sales dates.
Regional differences: In Scotland and the North West, average house prices have risen over the past year
Richard Donnell, Managing Director of Zoopla, says: “House price growth has slowed rapidly over the past year as demand eases amid higher mortgage rates.”
“While UK house prices have risen 0.1% over the year, it is sales figures that have been hit hardest by higher borrowing costs, particularly among mortgage-dependent buyers.”
“Cash shoppers are immune and on track to account for more than one in three sales by 2023.”
“Mortgage rates have started to slowly come down, but rates need to fall below 5 percent before we see increased relocation in the second half of 2023.”
While UK house prices appear to be virtually at a standstill, data from Zoopla suggests that there is a clear north-south divide in house price inflation.
All regions in the south of England saw price declines of up to 1 per cent year-on-year.
All other UK regions and countries are experiencing low, single-digit price growth. Scotland, for example, recorded growth of 1.7 percent year-on-year.
According to Zoopla, this pattern of price changes reflects the larger impact of higher mortgage rates on higher-quality real estate markets
Buyers in southern England need bigger mortgages, bigger deposits and a higher income to buy. This forces more buyers out of the market, weakens demand and drives down prices.
In contrast, market activity is holding up better in cheaper markets, particularly Scotland. These trends will continue throughout 2023 and into 2024.
Southern regions are seeing the larger price declines: London and East England saw house prices fall by an average of 1 per cent
David Plumtree, Managing Director of Connells Group Estate Agency, said: “Our sales price data showed positive growth in Scotland and the north of England, while the south of England, the Midlands and London all saw modest declines.”
“It’s well known that these areas can be more expensive overall and what we’re seeing is that prices may have peaked as affordability of borrowing has meant that buyers are more likely than they have been in recent years when the Borrowing was cheaper are more cautious.”
“There’s even more room for growth in areas that are more affordable.”
If you look at individual cities, there are even big differences. For example, property prices in Edinburgh are up 2 per cent and in Nottingham and Birmingham average prices are up 1.2 per cent year-on-year.
Alison Pallister, branch manager at property brokers Bairstow Eves in Nottingham said: “We are selling a lot of properties at the moment. We’ve recently had 30 viewings and a handful of offers on a property.
“Interestingly, we’re also seeing a number of cash buyers. Nottingham is a great city to invest in because it’s historic, it’s a university city and the amenities are great, including a new tram system.
“In recent years, the popularity of the city center investments has increased.
“We see buyers with their hearts in their heads and not the other way around – more people come to live here than investors.”
Differences between cities: Edinburgh has been the city with the highest appreciation in property prices over the last 12 months. Aberdeen was the worst
Meanwhile, some cities have seen house prices fall by 1 percent or more since July last year.
Aberdeen is down 1.6 per cent, Bournemouth is down 1.3 per cent, Cambridge is down 1.2 per cent and average prices in London are down 1 per cent.
Matt Thompson, sales director at London estate agents Chestertons, says: “With the Bank of England confirming a 14th consecutive rate hike in early August, buyers have been more cautious and in some cases paused their interest rate searches to adjust their finances.
“However, there are still buyers who have already agreed a mortgage rate with their lender and want to secure a property before the rate expires.
“Meanwhile, homeowners remain eager to put their property on the market and wait for the right buyer as Chestertons branches saw a 10 percent increase in properties for sale last month compared to the same month last year.”
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