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UK house price growth slows as property sales set to fall

UK house price growth: Victorian terraced housing in Basingstoke, UK
Zoopla expects house price growth to dip into negative territory in the first half of next year as the market adjusts to weaker buying power and concerns over the economic outlook. Photo: PA/Alamy

UK house price inflation has slowed to 7.8%, the lowest growth rate recorded since November 2021.

A quarter of homes for sale have seen their asking prices reduced, while the number of transactions is set to fall from 1.3 million to 1 million in 2023, according to the latest data from Zoopla.

The real estate company expects price growth to dip into negative territory in the first half of next year as the market adjusts to weaker buying power and concerns over the economic outlook.

As many as one in 10 homes have already had a price reduction of 5% or more since September this year, with around a third of properties in the South East and East of England slashing prices to attract demand.

Zoopla found that the average price achieved in recent weeks was 3% below the asking price compared to 0% for much of 2021 and the first half of 2022.

Read more: Property demand shifts from buying to renting amid financial uncertainty

“We expect discounts to widen further in 2023,” Zoopla said. “History shows that when discounts reach 5-6% this points to flat to falling prices.

“It’s important sellers who want to achieve a sale are realistic on selling prices and speak to agents for the right advice for their home.”

The slowdown comes after the chaos of Kwasi Kwarteng’s mini-budget in October, which saw the British property market stall.

Since the mini-budget, demand has fallen by 44% year-on-year, with sales down 28% compared to this time 12 months ago.

Watch: How to prevent getting into debt

New sales have fallen by up to 50% in previous market hotspots and high-value areas where higher mortgage rates will hit buying power hardest.

This includes the mid-to-upper price bands in Southern England (excluding London), East Midlands and Wales.

Sales have fallen less in more affordable areas and London where market conditions have been weaker.

The data also revealed that more homes are coming to the market for sale overall, with the total stock of homes available up 40% compared to 2021. However, this is still almost 20% below pre-pandemic levels and rising supply will boost choice for consumers.

Read more: UK mortgages: More than half of people in 30s and 40s worried about interest rates

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: "For most of the past two years, sellers have on average achieved their asking prices. However, in recent months, a gap has opened up, so they’re having to accept offers 3% below the asking price.

"There’s not an awful lot to be cheerful about in the property market at the moment, but there is one bright spot. Mortgage rates are coming down, and according to Moneyfacts, five-year fixed rates have dipped below 6%. As times get tougher, and the threat of more rate rises starts to fade, we may well see these rates come down further.

"It’s highly unlikely to be enough to turn the market around, and see buyers return once we're deeper into the recession. However, more manageable rates may well mean that the market correction isn’t as dire as some analysts had predicted."

Rising interest rates from the Bank of England (BoE) has also put pressure on the sector as mortgage rates have soared.

After reaching record highs of more than 6%, the underlying cost of five-year fixed rate mortgages have fallen back over the last month, with levels closer to 5% going into 2023.

Read more: UK house prices to fall in 2023 amid rising mortgage rates

Whilst this is a better position than rates of 6.25% previously seen, it still represents hundreds of pounds a month in average buying costs for the seven in 10 households reliant on mortgages.

“The housing market is adjusting to a reset in the level of mortgage rates but the likelihood of double digit house price falls at a UK level remains low,” Richard Donnell, executive director at Zoopla, said.

“While the outlook for house prices is weak, we see a shift to more needs driven motivations to move in 2023 and beyond which will support sales volumes. Ongoing pandemic impacts, increased labour market flexibility plus more retirement will continue to encourage moves.

Cost of living pressures will compound these trends encouraging home owners to consider their next move. The rapid growth in rents, which shows little signs of slowing, will add to cost of living pressures and add continued impetus to first time buyer demand.”

Watch: Will UK house prices ever fall?