House prices rose by 7.8 per cent in October, according to Zoopla’s latest house price index as the property site predicts they will fall by 5 per cent next year.
It represents a slowing of growth compared to last month, when Zoopla reported that house prices had increased by 8.1 per cent in the year to date.
Quarterly house price growth has slowed to 0.7 per cent in November, the lowest rate since February 2020.
However, despite a clear change in market sentiment none of the major cities or regions have recorded price falls over the last three months.
Slowing: House price growth across the UK fell to 7.8% in October according to Zoopla
Price growth has been impacted by September’s ill-fated mini-Budget, which saw mortgage rates rise sharply as the cost of borrowing increased due to a sell-off of Government bonds – known as gilts.
Since then the market has been in an almost constant state of flux. In October the average two-year and five-year fixed mortgage rates hit recent peaks of 6.65 per cent and 6.51 per cent respectively.
And while rates are now steadily falling buyer demand has dropped by 44 per cent following the fiscal statement.
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‘There is a really big trend of wait and see at the moment,’ says Matt Coulson, mortgage adviser at Heron Financial. ‘What you tend to find is that with the purchase market, as soon as you hit 1 December it does cool off and I think we have seen that a month earlier this year.’
New sales have also fallen, according to Zoopla, dropping 28 per cent compared to the same time last year driven predominantly by the rise in mortgage rates.
Its outlook for 2023 assumes mortgage rates will fall back to 4-5% leading to a 5 per cent drop in house prices.
This means that 5-year fixed mortgage rates are likely to start 2023 at or just below 5 per cent, a much better position for the housing market outlook than today’s rates of more than 6 per cent.
Yet compared to where rates were last year and earlier in 2022 it still represents a material increase in buying costs for the 7 in 10 households that are using mortgages.
Down: Buyer demand has dropped by 44% following September’s mini-Budget
House price falls: What are the forecasts?
Zoopla’s house price prediction is softer than the estimations of some others.
According to the Office of Budget Responsibility, house prices will fall by around 9 per cent between the end of this year and September 2024. The change, it says, will be driven by rising mortgage rates and tougher economic conditions.
Other analysts have previously predicted falls of up to 30 per cent in the next two years.
Price falls mean sellers are less likely to achieve the asking price for their properties.
The strength of the post-pandemic market resulted in buyers having to pay, on average, 100 per cent of the asking price or higher on some occasions for much of the past two years.
The average discount required to achieve a sale has widened to 3 per cent in recent weeks.
Zoopla expects average discounts to extend further as ‘we move to more of a buyers’ market’.
Richard Donnell, executive director of research at Zoopla, said, ‘We still expect house price falls of up to 5 per cent in 2023 with 1 million sales and mortgage rates dipping below 5 per cent.
‘But the number of sales going through will remain buoyant for a range of structural, demographic and economic factors.’
The analysis notes that strong house price growth has given buyers more room to negotiate on asking price. The prospects for 2023 will depend on how willing sellers are to adjust asking prices in line with what buyers are prepared to pay.
Zoopla added: ‘We do not see any evidence of forced sales or the need for a large, double digit reset in UK house prices in 2023’
At the same time the fall in demand and sales, as well as more homes coming to the market, mean that the stock of homes for sale continues grow albeit off a low base. Last month the average estate agency office had 23 homes for sale.
This is the highest since January 2021 but almost a fifth lower than pre-pandemic levels.
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, have been urged to act but not to panic.
Banks and building societies are still lending and mortgages are still on offer with applications being accepted.
Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates.
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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.