Despite house prices hitting a record £250,000 in Zoopla’s latest index for April 2022, their report is awash with signs that the market is soon to slow down – and may already be doing so.
The average UK house price now stands at a record of £250,200, growing by 8.4% during the year to the end of April, slightly down from the annual rate of 9% recorded in March.
Yet, with buyers facing pressure on their finances due to the rising cost of living, both the time taken to sell a home and the number of price reductions on properties have increased, according to Zoopla’s latest House Price Index.
Property values edged ahead by just 0.2% during April itself, compared with monthly gains of 0.7% at the start of the year. This growth is expected to continue to ease, though house price are not expected to fall.
Meanwhile, the market remains significantly busier than before the pandemic, but there are signs that activity is starting to slow.
Demand continues to outweigh supply, with the number of potential buyers currently 61% higher than the five-year average. Meanwhile, the level of homes for sale is 37% lower than normal.
But the number of properties being put up for sale is beginning to increase. The number of new listings in the four weeks to 22nd May were 7% higher than the five-year average. Homes also took longer to sell than during the previous month for nearly all property types.
At the same time, there has been an increase in the number of properties where sellers have reduced the asking price by at least 5%. Since the second half of April, one in 20 properties listed has had a price reduction. This is compared with one in 22 in the previous 28 days. The average price reduction is 9%. For the typical house in the UK, this represents a discount of £22,500.
As for mortgage affordability, monthly repayments for new mortgage customers have risen by £71 a month – the equivalent of £852 a year – since the start of the pandemic, based on a £175,000 mortgage.
At the same time, the average income needed to secure a mortgage on a £250,000 property has increased by £4,500 in the same period. This is assuming you put down a 30% deposit and borrow 4.5 times your income.
The current data suggests that pressure on people’s budgets, combined with other economic headwinds, is already affecting sentiment at the lower end of the housing market. Those with more disposable income are currently driving activity.
Gráinne Gilmore, Head of Research at Zoopla, said:
“The annual rate of price growth will ease this year. On a monthly basis, price growth has already moderated.
A continuation of this trend, even with some small monthly declines, means price growth will reach 3% by the end of the year.”
But she adds that Zoopla is not anticipating widespread house price falls.
“Given the number of homeowners on fixed-rate mortgages, which protect them against interest rate rises in the short to medium-term, the stress tests carried out on those loans, and the healthy employment market, we are not expecting a raft of forced sales in 2022, which is usually the trigger for price falls.”
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, commented:
“Reality is starting to dawn in the housing market, as overly optimistic sellers are being forced to knock tens of thousands of pounds off their asking prices. It’s one of three key signs that we’ve reached the peak of price rises, and when added to the fact it’s taking longer to sell and we’re seeing more down-valuations from mortgage valuers, it means that price rises are highly likely to slow from this point.
We’ve been expecting a sustained slowdown in price rises. The question was always ‘when’, rather than ‘if’. Rising prices and increasing mortgage rates have pushed mortgage payments up significantly. At a time when the cost of everything is rising through the roof, this has forced some buyers to reconsider what they can realistically afford. At the same time, mortgage lenders have factored higher prices into their affordability calculations, making it more difficult to borrow.”
Peter Beaumont, CEO of The Mortgage Lender, said:
“Prospective buyers are beginning to feel the pressure of historic inflation and cost of living rises. Such a squeeze on household budgets, combined with the increased costs to borrowing is beginning to curtail the conditions that had incentivised strong buyer demand. For the second month, the rate of house price increases has started to stutter, and we are witnessing a reality that is tough on buyers and those seeking to re-mortgage. Current price rises are being driven by demand in the housing market outweighing adequate supply, meaning we’re unlikely to see the prophesised slowdown just yet.”
