The housing market’s slowing down with fewer sales and slower house price growth.
We're shifting to a buyers' market as things cool down after a hectic two years since the pandemic.
But we don’t see a housing crash on the horizon.
Why not?
The housing market’s in a very different position to the last time we saw house prices fall, after the global financial crisis of 2008.
There will be some repricing of homes, but the huge price growth in the last two years will absorb any falls and prevent a housing crash. Changes in property value will also vary by region and property type.
While the housing market is feeling the effects of higher mortgage rates, other factors will continue to prop up the market.
The Covid-19 pandemic opened up the housing landscape in the UK. It gave us greater choice over where we live, highlighted our relationships with our homes, and altered our reasons for moving.
Let’s take a look at what’s changed in the last few years, and why it means there won’t be a housing crash.
House prices aren’t as overvalued as they were in previous economic cycles
“House prices tend to fall when they get too high and out of kilter with incomes,” says Richard Donnell, Executive Director of Research and Insight at Zoopla.
“In the past, this has gone hand in hand with more relaxed mortgage lending.
“In 2007, more than a third of buyers taking out a mortgage didn’t prove their income to the bank. And almost a fifth were getting mortgages when they had small deposits of less than 10%.
“This led to house prices shooting up. Then, when mortgages dried up and the economy went into recession, prices fell back.
“The difference now is that there have been much tougher rules to get a mortgage in the last few years.
“You've had to prove a lot more about your income and outgoings. People usually have larger deposits so they are less vulnerable to possible negative equity.
“In short, we don’t have the scale of over-valuation of housing that we’ve seen before.
“This puts the market in a much better position to weather high mortgage rates and the increased cost of living.
“The housing market is not immune from these pressures and is already feeling the squeeze. But the likelihood of big price falls is much lower than in the past.”
House price growth has spread across the country
House price growth has spread around the country, with many regions tracking 10 years of house price growth in just two since the pandemic.
What's happening with house prices in the UK?
The value of housing has started evening up across the country, giving more people equity and allowing the market to absorb the effects of an economic downturn.
Rising mortgage rates won’t hit existing homeowners too hard
We have seen a drop in activity levels in the sales market as home buyers react to increasing uncertainty and the disruption in the mortgage market.
Ultimately, whether or not there will be a housing crash depends on how quickly inflation is brought under control and financial markets getting more clarity on how the government will fund the recent tax cuts.
Mortgage rates have risen to 6%, but it's unlikely they'll remain this high. We expect them to drop to 4% to 5% in 2023.
But half of all homeowners have a mortgage, and the rest own their homes outright.
Of homeowners with mortgages, 90% are on fixed rate deals for up to 5 years. Many are on low rates of sub 2%.
And if you got your mortgage post-2015, you will have had to prove you can afford a mortgage rate of up to 7%. This means many homeowners will be able to absorb additional cost pressures on their budget.
More people want to move because of the pandemic
In a recent survey, we found that 22% of people were more keen to move house since the pandemic. Only 6% were more keen to stay put.
Of existing homeowners, 19% were eager to move because of the pandemic.
Those figures might not sound very high.
But when only 4% to 6% of owner-occupiers move house each year, it’s a massive proportion.
Was this just a short-lived, post-lockdown thing?
Nope.
We asked consumers the same question in 2022. And for those who want to move home, they’re even more certain it’s the right choice.
“The data suggests that attitudinal changes have matured,” says Richard. “They’re both more considered and more embedded within households.
“And when you have buyers with their mind set on a move, the market will keep moving too.”
Thinking all these committed buyers have already made a move?
Only 1 in 17 privately-owned homes changed hands in 2021. That means plenty of people who want to move and haven’t yet taken the plunge.
Hybrid working is here to stay
In February 2022, 42% of people plan to work mostly from home, according to the Office for National Statistics. That’s an increase from 30% in April 2021.
That’s around five million more workers who are now able to work from home when they want, and a total of 9.7 million people.
“We’ve seen a strong trend between home working and the desire to move home,” says Richard.
“Our consumer survey found that home workers are five times more eager to move than those with more traditional working patterns.”
54% of those who expected to work from home more said they were more eager to move, compared with 13% who expected to do less working from home in future.
Working from home patterns have been a major contributor to the demand to move home in the last two years. We expect this influence to continue in the years ahead.
First time buyers are more motivated to get on the ladder
The working from home trend has granted a huge amount of opportunity for first time buyers.
“In our survey, renters were the most keen to move house out of anyone” says Richard.
“25% of renters said they were more eager to move because of the pandemic.
“With less of a need to live close to the office, first time buyers can look further afield for their home.”
We’ve seen a marked increase in the radius that first time buyers are searching in since the pandemic.
“A first time buyer in London now considers homes in an area 33% bigger than pre-pandemic,” says Richard.
“And first time buyers outside of London stretch their search by a further 20% since the pandemic.”
“This shows that many first time buyers would rather get on the ladder now in a cheaper area using their current savings, than wait until they can afford a more expensive area.”
We’re still keen to swap city life for country living
It’s been one of the biggest talking points about the housing market since the pandemic.
That we all want to switch the city for a slower pace and more space.
And our research shows this trend is even more pronounced a couple of years on.
“Back in July 2021, people living in major cities were far more likely to want to move house (36%) than those in rural areas (3%),” says Richard.
“Fast forward to spring 2022, and 44% of city dwellers want to move to a more rural location.”
“Interestingly, more rural homeowners fancy a move this year, too (8%).”
“This is typically older homeowners looking to downsize. The influx of demand to rural areas has created more opportunities to relocate closer to family or take equity from their current home.”
More people are retiring
Almost half a million older workers have left the labour market since the pandemic.
A huge 63% of adults aged 50 to 70 left their job sooner than expected, according to the Office for National Statistics.
Leaving work to retire was the most commonly reported reason (47%). But 15% of retirees said they left because of the Covid-19 pandemic, and 13% cited illness or disability.
Retirement is a common trigger for selling your home.
You might want to be closer to family and friends. Some are looking to embrace a new lifestyle or indulge in a passion, while others want to downsize and release some equity.
There may be other practical reasons for a move in retirement, like the need for good public transport or healthcare nearby.
With 75% of older households (65+) owning their home outright (GOV.UK), this group has the means to make a move that suits their lifestyle. They’re keeping momentum in the market by offering homes for sale while also buying a new place.