Zoopla's Latest House Price Index: Key Insights into the UK Property Market

As the year comes to a close and another is in reach, we know that many people within Ealing, Northfields, & Hanwell have been asking us about the state of the current property market. One of the House Price Indexes that is worth reviewing is Zoopla's, which just released its latest findings on 30 October. Zoopla's previous housing market forecasts proved more positive than others, and their recent findings suggest they were correct in predicting up to 5% declines in house prices and 1 million transactions in 2023.

However, whilst this is good news for sellers, higher mortgage rates mean that it will take until 2024 for the market to adjust fully. This is not a short-term fix, and with rates likely to remain high, income growth must support sales and housing affordability going forward.

Update on house prices

The current cost-of-living squeeze, coupled with higher mortgage rates, has led to a decrease in buyer demand. Though there was a temporary rebound in the first half of 2023, as mortgage rates fell to 4%, rising rates during the summer stalled buyer demand once more. In comparison to last year, buyer demand has decreased by a fifth and is 25% below the five-year average for October. This decline in buyer demand has led to a significant slowdown in house price inflation, from +9.2% a year ago to -1.1% today. Some house price indices, which are based on mortgage lending, have reported larger drops in house prices. Conversely, the Office for National Statistics’ index shows house price growth at +0.2% in July.

Despite predictions that house prices would drop even further in 2023, there are a few factors that have helped prevent this from happening. For instance, the economy continues to grow, and unemployment is low, while incomes are on the rise. Mortgage lenders have also played their part by enabling customers to refinance, thereby limiting the number of forced sellers.

Moreover, tougher affordability testing has been in place since 2015, and this has instilled a degree of resilience into the market.

It has prevented households from relying too heavily on ultra-cheap finance to take on unsustainable levels of debt. In the past, such relaxed lending led to quick increases in property prices, followed by larger price drops once demand waned. However, new mortgage buyers must now prove they can afford a 7% mortgage rate, even if they are paying 2%. This means that they will be able to handle the current rates when they remortgage.

Desire to move remains

According to Zoopla's recent survey, many people are interested in buying a new home, but they're waiting for clearer economic outlooks before they make a move. Prospective buyers are closely following trends in mortgage rates and house prices. Fortunately, the threat of a major housing market crash is now less of a concern, and home buying decisions are largely influenced by people's financial capacity to handle 4-5% mortgage rates. Thankfully, real income growth is finally starting to show, which will motivate more people to pursue home ownership.

Despite higher living costs and inflation this year, it appears that things are starting to look up for buyers. However, the impact of higher mortgage rates will be most significant on people who are looking to move to bigger homes and take out larger mortgages. Upsizers may need to consider alternative locations and properties to keep up with these changes. 

The Future Outlook 

Zoopla suggests that for more buyers to enter the market and for sales volumes to improve, housing affordability needs to be enhanced. Besides, households require economic stability to build their confidence. UK housing remains comparatively expensive with only a slight fall in house prices and mortgage rates fixed at 5%.

Therefore, either house prices must decrease more or incomes should increase, or mortgages must be reduced further to restore affordability. It is anticipated that by the end of 2024, house prices in the UK will decline by 2% provided that mortgage rates decrease to 4.5% and remain so into 2025. 

The high supply of homes for sale will force sellers to set competitive prices, keeping the growth of house prices either negative or low. Although faster income growth would support affordability, it is expected that the UK housing market will remain slightly overvalued by the end of 2024. Mortgage rates' trajectory and affordability assessment by lenders in 2024 would impact the outlook.

The Bank of England expects inflation to drop to its target by the first half of 2025, resulting in quicker-than-anticipated mortgage rate decreases in 2024, potentially boosting sales numbers.

Ealing, Northfields, & Hanwell perspective

Although it is important to understand what is happening within the housing market nationally it is the local perspective that will give you the insight you need when it comes to your Ealing, Northfields, & Hanwell home. Give our Leslie & Co. team a call on 020 3488 6445.