House prices fell 1.3% in the last six months says Zoopla, but will now stay flat

House prices fell 1.3% in the past six months – but despite weaker demand, new sales agreed in May are up 11% on normal levels

  • Prices rose 1.9% over the past year, compared to 9.6% the year before
  • Zoopla says buyers are coming to terms with higher interest rates 

House prices fell 1.3 per cent over the past six months as higher mortgage rates and an increase in living costs hit demand, according to Zoopla’s latest house price index.

The property platform expects prices to remain broadly static over the next year despite confidence coming back to the market.

Prices rose 1.9 per cent over the past 12 months, significantly lower growth than the year before when there was a 9.6 per cent rise.

Shock: The market was rocked by higher mortgage prices at the end of last year

Richard Donnell, executive director at Zoopla, said: ‘Higher-than-expected inflation data has increased the probability of further interest rate rises. 

‘This will have a knock-on effect on mortgage rates which appear likely to edge higher in the coming weeks.

‘This would reduce buying power and demand for homes in the second half of the year, and the impact depends on how much rates increase.’

Despite weaker demand, the number of new sales agreed over the last month was 11 per cent higher than the five-year average for the same period, Zoopla said. 

As many buyers are also selling a home, more sales boost the flow of new homes for sale which was 16 per cent up on the five-year average.

Improving levels of housing activity over the last two months prove that 4 per cent to 4.5 per cent mortgage rates are generally manageable for new homebuyers, the property website said.

However, borrowers needing to re-mortgage and coming off a fixed rate will still face a significant shock as rates are more than double the lows of late 2021.

Zoopla says that mortgage rates of 4 to 5 per cent are consistent with house price growth of +2 per cent to -2 per cent and circa 1 million sales a year, so long as the UK continues to see a strong labour market.

However, mortgage rates look set to edge up again. Last week, Nationwide increased some of its rates by up to 0.45 per cent, and others followed. 

Overall, the number of housing sales this year is on track to be 20 per cent lower than last.

Slump: All cities across the UK lost house price growth momentum in the year to April 2023

Slump: All cities across the UK lost house price growth momentum in the year to April 2023

Donnell warned that while there are more sales being agreed, sellers must remain realistic on pricing to attract buyer interest.

Nearly a fifth (18 per cent) of homes currently listed for sale on Zoopla have had the asking price cut by 5 per cent or more, although the proportion taking cuts has fallen from 28 per cent in February.

Price reductions typically come eight weeks after the first listing, as sellers try to boost interest from buyers.

And while some properties are taking small cuts to sales prices, Zoopla says there is no build-up of unsold stock so bigger price cuts are unnecessary.

The number of homes listed for more than 90 days in most areas is in line with the 5- year average.

Rate rises: Mortgage rates have dropped after their spike but are creeping back up

Rate rises: Mortgage rates have dropped after their spike but are creeping back up

Notably, Zoopla’s data found 1 in 10 (11 per cent) of homes listed for sale were previously rented out, a level that peaked at 14 per cent in 2020 and which has drifted lower over the last 3 years. 

Landlords are selling properties in response to higher mortgage rates and a tougher tax regime that has come into place over the last five years.

House price growth over the last 7 years has ranges from just 12 per cent in London to 47 per cent in Wales. While average earnings increased by 30 per cent over the same period.

Areas with house price growth outpacing earnings align with those where demand is below average at present. 

In contrast, the regions and countries with the lowest rate of price inflation since 2016 are recording stronger activity.

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, should explore their options as soon as possible.

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for