Growth slows as mortgage rates hit UK housing market

The average UK property is £17,500 more expensive now than a year ago though house price growth has slowed and London properties are nearly 25 percent cheaper than five years ago, according to data from property portal Zoopla.

The underlying rate of quarterly price inflation has slowed from more than 2 percent during the summer to just 0.3 percent in the last 3 months - an annualised growth rate of just 1.4 percent. Zoopla expects to register quarterly price falls in the first half of 2023, dragging the annual growth rate into negative territory by mid-year.

The impact of higher mortgage rates is clearly being felt least in more affordable markets and most keenly in the most expensive parts of the UK, the property website found. Price growth has been slower in the upper end of the market but where prices are more expensive, higher rates have a greater impact on borrowers.

It's the same pattern across all regions of the United Kingdom Zoopla said, as weaker demand from higher mortgage rates, cost-of-living pressures and low consumer confidence hits price growth across all markets.

Sellers are accepting 4 percent discounts on asking prices to achieve a sale.

Desperate sellers continue to accept larger discounts to asking prices to achieve sales. The gap has grown to 4 percent in the last month, from 0 percent in early October. Zoopla expects discounts to widen further in 2023. However, at this late stage in the year, fewer sellers reduce asking prices as they wait to see what the market holds in January before making any changes to pricing.

Search for space

A key trend over the last two years has been the search for space. A proportion of buyers have looked to relocate to rural and coastal areas, pushing up demand and house prices more quickly than in other areas. A key trend over the last 2 years has been the search for space. A proportion of buyers have looked to relocate to rural and coastal areas, pushing up demand and house prices more quickly than in other areas.

Housing markets in urban areas remains buoyant

Buyer interest remains stronger in urban locations where jobs are being created and there are more services. Family housing in city suburbs and commuter areas has registered strong buyer interest over the last year, while demand in city centres has been weaker as a result of more working from home.

Mortgages approved by lenders plunge to their lowest monthly level

For those unaware, mortgage rate increases began in the wake of the September mini-budget as expectations rose that the Bank of England would increase interest rates further than expected in an effort to bring down inflation, which many feared would spiral due to unfunded tax cuts and spending on energy supports.

After the mini-budget, the number of mortgages approved by lenders plunged to their lowest monthly level in more than two years during October, according to data from the Bank of England. Many providers pulled mortgage products from the market amid market uncertainty.

How does 2023 look like?

Affordability is the primary factor looking ahead to 2023 and beyond, and will be influenced by mortgage rates, household incomes and the actual level of house prices. The more unaffordable a local market, the more households are priced out, weakening demand and impacting sales volumes and pricing. The opposite is true in more affordable markets where house prices tend to be lower.

Higher mortgage rates increase the income needed to buy and worsen affordability for those buying with a mortgage (7 in 10 sales). The impact is the greatest in high-value areas where mortgages are bigger.

House hunters who had once sought space and working from home may be turned off by increased prices in such areas over the past two years, Zoopla said. So while London property prices have fallen by 24%, demand is increasing for urban areas to be near jobs and services.

The national view is UK house prices falling by 5 percent by next year. But price falls in these more affordable markets are likely to be below average as the hit to buying power from higher mortgage rates will be less than in the high-value markets. This is supported by the evidence of continued above-average demand in more affordable urban areas.

So while London property prices have fallen by 24 percent, demand is increasing for urban areas to be near jobs and services. Bradford, Swindon, Coventry, Crewe, Milton Keynes and Southend are the biggest beneficiaries from that urban buyer interest. At the same time, demand for and sales of homes in coastal and rural areas have reduced at a greater rate than other locations.

Areas where this trend is evident include parts of the south of England, such as east Kent, Torquay and Portsmouth; the wider Lake District area; and mid-Wales.

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