More homes are now coming to the market creating greater choice for buyers.
With sellers lowering their asking prices to achieve a sale by £14,100 on average, the balance of power is now shifting to buyers, meaning there’s more wiggle room to negotiate on price, according to our latest House Price Index.
Sellers lowering prices in order to achieve a sale
The upward pressure on house prices is also beginning to ease following the buying frenzy seen during the pandemic.
From 2021 to 2022, buyers generally needed to pay 100% of the asking price - and often more - in order to secure the home of their dreams.
Now, more than 40% of homes listed for sale on Zoopla have reduced asking prices in order to attract more price-sensitive buyers.
Sellers are now taking an average of around 4.5% off their initial asking price to secure a sale, in a trend seen across all regions and property types.
Buying power hit by higher mortgage rates
Buying power is starting to recover as mortgage rates fall from their 6% highs of late 2022.
But even at 4% mortgage rates, the average home buyer has 20% less buying power than they did a year ago, when mortgage rates were 2%.
That means they’ll have around 20% less to spend when buying a new home, because more of their mortgage repayments will be going on interest.
The impact of higher mortgage rates will not feed straight through into house prices.
Some buyers will look to buy smaller or cheaper homes to make up for that 20% shortfall, as we highlighted last month.
Others may inject more equity into purchases or be in position to spend more on mortgage repayments.
What will happen in the rest of 2023?
We expect to see small month-on-month price reductions over the next 2-4 months as a soft reset in house prices continues.
By the summer, we anticipate our index to be recording modest annual price reductions of up to 2 or 3%.
That said, the housing market is adjusting to higher mortgage rates better than many had feared and it’s welcome news to see more rates for new buyers now in the 4-5% range and even lower.
Mortgage rates are unlikely to get much cheaper but competition among lenders will remain strong and keep deals attractive for borrowers.
Our view has always been that 4% mortgage rates are manageable and consistent with very low levels of house price growth or price falls in real terms.