Home buyers are securing an average of £18,000 off their next home in order to confirm a sale due to higher mortgage rates hitting demand, and more homes for supply boosting choice and negotiating power, Zoopla’s latest House Price Index has revealed.
This is the highest discount for five years, at 5.5% off the purchase price for sales in November compared to an average discount of 3.4% average in the first six months of the year. The trend is particularly prevalent in the South of England, as the average discount to the asking price for sales is 6.1% in London and the South East – equating to a total reduction of £25,000 off the asking price.
Results of the latest Zoopla House Price Index confirms the existence of a strong buyers’ market with annual house price inflation also falling to -1.2%, down from 8.2% a year ago.
Richard Donnell, executive director at Zoopla, said “these are the best conditions for home buyers for some years with more homes to choose from and with sellers more prepared to negotiate on price to agree a sale. There is a growing acceptance that what a home might have been worth a year ago is now largely academic given current market conditions. Sellers have plenty of room to negotiate with average house prices still £41,350 higher than the start of the pandemic. It’s a positive sign that new sales continue to be agreed at a faster rate than a year ago and pre-pandemic. This indicates that house prices do not need to post bigger falls to get people moving but sellers need to be ready for more negotiation on price. New sales will slow as we run up to Christmas and some sellers will take homes off the market ready to relaunch in the new year.”
Despite buyer demand remaining 13% lower than 2019, new sales are still being agreed with the total volume currently 15% higher than this time last year, and 5% up on 2019 levels.
This indicates greater realism on the part of sellers and a growing sense among would-be movers that mortgage rates may have peaked and could start to fall later in 2024.
However, the market remains on track for one million sales completions in 2023, with sales holding up across many parts of Scotland and inner London where market activity has underperformed the rest of the UK over recent years.
Zoopla said it will remain a buyers’ market in 2024, with no rise in house prices anticipated any time soon. It added, however, that while five-year fixed mortgage rates have been falling below 5%, they need to fall further to bring more buyers back into the market. If mortgage rates start to fall further, the property website said this would support an improvement in demand and sales volumes later in 2024, but prices will remain under modest downward pressure.
House price recovery continued in November, reports Nationwide
Building society's house price index indicates prices rose 0.2% month on month
UK house prices rose 0.2% month on month in November, according to Nationwide’s House Price Index.
The building society reported though that house prices were down by 2%, compared to two years ago. While annual growth remains weak, it is the strongest growth since February 2023.
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “UK house prices rose by 0.2% in November, after taking account of seasonal effects. This was the third successive monthly increase and resulted in an improvement in the annual rate of house price growth from -3.3% in October, to -2.0%. While this remains weak, it is the strongest outturn for nine months.
“There has been a significant change in market expectations for the future path of Bank Rate in recent months which, if sustained, could provide much needed support for housing market activity.”
Gardner continued: “In mid-August, investors had expected the Bank of England to raise rates to a peak of around 6% and lower them only modestly (to c.4%) over the next five years. By the end of November, this had shifted to a view that rates have now peaked (at 5.25%) and that they will be lowered to around 3.5% in the years ahead.
“These shifts are important as they have led to a decline in the longer-term interest rates (swap rates) that underpin fixed rate mortgage pricing, as shown below. If sustained, this will help to ease the affordability pressures that have been stifling housing market activity in recent quarters, where the number of mortgage approvals for house purchases has been running at c.30% below pre-pandemic levels.”
He added: “While mortgage rates are unlikely to return to the lows prevailing in the aftermath of the pandemic, modestly lower borrowing costs, together with solid rates of income growth and weak/negative house price growth, should help underpin a modest rise in activity in the quarters ahead.
“Nevertheless, a rapid rebound still appears unlikely. Cost-of-living pressures are easing, with the rate of inflation now running below the rate of average wage growth, but consumer confidence remains weak, and surveyors continue to report subdued levels of new buyer enquiries.
“Moreover, while markets are projecting that the next Bank Rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high.
“Policymakers have cautioned that it is too early to be talking about interest rate cuts. Indeed, three of the nine members of the Bank of England’s Monetary Policy Committee voted to increase Bank Rate at its meeting in early November, though the remaining six preferred to hold at 5.25% for the time being.”
Karen Noye, mortgage expert at wealth management business Quilter, said: “The latest UK house price figures paints a picture of a market cautiously tiptoeing towards some semblance of stability. November's 0.2% bump in house prices, according to Nationwide, is a small but significant signal of recovery in a year that has seen a 2% dip compared to its predecessor. This slight uptick on the meteorological first day of winter is like a green shoot of recovery for the housing market hinting at potential growth amidst challenging conditions.
“Data from the Bank of England earlier this week showed that mortgage approvals, too, are inching upwards, with October witnessing a climb to 47,400 from September's 43,300. This also shows signs of life in a market that's been under the weight of economic uncertainty and high interest rates.
“Yet, the broader picture remains one of caution. The staggering 21% year-on-year fall in residential transactions, also released this week, muddies the picture and echoes the market's hesitation. It's a clear sign that many are still waiting for a more favourable wind in terms of house prices and mortgage costs.”
Noye elaborated: “Limited housing stock and high rental costs are nudging people towards buying, yet the high cost of mortgages and economic uncertainties are weighing heavy on budgets holding back a full-scale market revival. The balance of recovery will hinge on how interest rates and the broader economic picture evolve in the coming months.”
UK house prices rise for third straight month as mortgage rates fall
Nationwide says average property price was £258,557 in November, £5,231 down on same month last year.
UK house prices rose for a third consecutive month in November as the market responded to hopes that mortgage rate costs had peaked. Nationwide, the UK’s biggest building society, said prices rose 0.2% month on month in November, after a 0.9% rise in October and a 0.1% rise in September. Economists polled by Reuters had forecast a 0.4% fall in prices in November.
It is the first time that homeowners have seen the value of their property rise at least three months in a row since the summer of last year.
On an annual basis, prices were down 2% in November, the best in nine months and after a 3.3% year-on-year fall in October.
The average price of a home was £258,557 in November, £5,231 down on the value of a typical property in the same month last year.
Nationwide said "the improvement in the market has followed the view that the Bank of England’s move to hold the base interest rate at 5.25%, after a run of 14 consecutive increases, means soaring mortgage costs will start to drop, fuelling more activity in the housing market. There has been a significant change in market expectations for the future path of the bank rate in recent months which, if sustained, could provide much-needed support for housing market activity,” said Robert Gardner, the chief economist at Nationwide. “By the end of November this had shifted to a view the rates have now peaked and that they will be lowered to about 3.5% in the years ahead.”
In November, the Bank of England kept the rate at 5.25% for a second time, albeit still at a 15-year high, which has helped to push some two- and five-year fixed mortgage rates back down to below 5% – down from peak levels of more than 6%.
Last month, the sharp drop in inflation from 6.7% to 4.6% fuelled hopes that the Bank of England might start cutting rates next year. However, earlier this week Andrew Bailey, the governor of the Bank of England, said there was no immediate prospect of an interest rate cut as the Bank faces a tough battle to bring inflation back to its 2% target.
Mark Harris, the chief executive of the mortgage broker SPF, said “the direction of travel for new mortgage rates is downwards, with a number of lenders making reductions this past week and bringing some early Christmas cheer to borrowers. However, while interest rates appear to have peaked, those hoping base rate will move swiftly downwards again to the rock-bottom levels of the recent past are likely to be disappointed. Pricing is higher than borrowers have grown used to over the years, meaning those buyers relying on mortgages are more price-sensitive on the back of ongoing affordability concerns.”
November property market unusually strong compared to September
Due to the improved economic outlook the November property market was stronger than September, a rare phenomenon. That is according to Knight Frank’s head of residential research Tom Bill.
He said “inflation has fallen to less than 5%, the best five-year fixed-rate mortgage is now under 4.5% and speculation around the bank rate increasingly relates to the timing of the next cut rather than the size of the next rise. Buyer sentiment has been lifted and produced a very belated autumn market. The signs increasingly point to a bounce next spring, provided a general election is not called in the first half of 2024.”
UK house prices increased for the third month in a row in November, Nationwide Building Society research shows.
London is seeing a high number of offers because prices stagnated during the pandeimc.
Average prices in prime central London are 17% below their last peak in mid-2015 while prices in prime outer London are down by 8% compared to mid-2016. At the same time, UK house prices soared by 19% from before the pandemic in February 2020.
Bill added “while the appetite of buyers and sellers should increase in 2024, at some stage this will be interrupted when Rishi Sunak calls the general election. The big question is when.”