The UK property market is facing its slowest year for house sales in over a decade, according to research by property portal Zoopla. The decline in sales is primarily due to higher mortgage rates and inflation, which have reduced the purchasing power of potential homebuyers. Zoopla’s study suggests that approximately 1 million houses will be sold in England, Scotland, Wales, and Northern Ireland this year, a decrease of 20% compared to 2022 and the lowest figure since 2012.

This decrease in sales comes after four consecutive months of falling house prices, indicating a slowdown in the property market. The rise in borrowing costs, triggered by successive interest rate hikes by the Bank of England, has directly impacted the desire of individuals to move home. Richard Donnell, head of research at Zoopla, said “Clearly, the impact of higher interest rates and cost of living is affecting people’s desire to move home.”

The research predicts a 28% year-on-year decline in mortgage-backed sales, whereas cash purchases are expected to fall by only 1% compared to 2022, accounting for one-third of all sales. Donnell emphasized that it is the mortgage market that is feeling the greatest squeeze. The average 2-year fixed residential mortgage rate currently stands at 6.7%, close to a 15-year high and significantly higher than the average of 3.95% recorded in early August 2022.

Donnell further highlighted that retired individuals, who have paid off mortgages and are looking to downsize in the face of rising living costs, have contributed to the strength of cash transactions. These retirees are seeking to free up cash through property sales. On the other hand, the housing market is still struggling to become more affordable, with prices falling at a slow pace. According to Zoopla’s own index, UK house prices rose by only 0.1% in July, the slowest annual pace since 2012.

However, the decline in house prices is not uniform across the country. While Scotland reported a 1.7% increase in house prices in July, London experienced a 1% decrease over the same period. Zoopla attributed the weaker demand in southern England to potential buyers being priced out of the market due to the need for larger mortgages, higher deposits, and higher incomes to make a purchase.

Zoopla anticipates that mortgage rates will decrease to below 5% later this year. However, the positive effects of this decrease on the ability of buyers to complete transactions may not be felt until the first half of next year. Donnell cautioned those expecting further drops in mortgage rates, stating that their expectations may be unrealistic. He suggested that consumers should recognize that 4-5% mortgage rates will likely be the new normal, rather than the 2-3% rates previously experienced.

In conclusion, the UK property market is witnessing a slowdown in house sales as higher mortgage rates and inflation reduce the purchasing power of potential buyers. This decline in sales is expected to make 2022 the slowest year for house sales in over a decade. The mortgage market is particularly affected, with mortgage-backed sales seeing a substantial year-on-year drop. However, cash transactions have remained relatively resilient, driven in part by retirees seeking to downsize. The housing market as a whole has not experienced significant price falls, making it less affordable for many buyers. Although mortgage rates are predicted to decrease in the near future, buyers may need to adjust their expectations as current rates are likely to be the new norm.