Investing in the property market is a strategic decision that depends heavily on the latest market dynamics. Here, we break down the recent findings from Zoopla, analysing the UK property market’s current state, so you can make an informed choice about your next move.
Key Market Insights
Zoopla’s recent market analysis reveals five major takeaways that every potential investor should consider:
- Stagnating House Price Growth: UK house prices have experienced a minor increase of 0.1% over the past year. This growth rate is the most sluggish we’ve seen since 2012.
- Diverse Regional Dynamics: There is a notable difference in house price changes across the UK. While Scotland witnessed a growth of 1.7%, London’s prices dropped by 1.0%.
- Drop in Property Sales: Compared to 2022, property sales have dipped by 21% this year.
- Impact of Rising Mortgage Rates: The sales backed by mortgages are expected to drop by a significant 28% due to increased rates. However, cash sales seem largely unaffected.
- Improving Affordability with Rising Wages: The silver lining is that wage growth is on the rise. Coupled with a potential decrease in mortgage rates, this could lead to an upturn in market activity next year.
Understanding the Market Dynamics
Several factors are converging to impact the property market:
Influences of Mortgage Rates & Living Costs
Higher mortgage rates and the mounting cost of living pressures continue to suppress demand. This results in decreased sales and a halt in house price growth. Over the past month, buyer demand has dropped by a staggering 34% when compared to the five-year average for the same period.
The North-South Divide in Property Prices
A clear geographic disparity is evident in the property market. The Southern regions of England, especially London, have seen a decrease in house prices of up to 1.0%. However, the other UK regions and countries, notably Scotland, are still experiencing growth, albeit in single digits.
The Affordability Factor
In regions with lower house prices, like Scotland and the North East, purchasing a home can often be more economical than renting. For instance, average mortgage repayments in these areas can be up to 18% lower than rental costs. However, in areas like southern England and the Midlands, the opposite is true. London stands out with mortgage repayments that are 24% pricier than average rents.
Property Sales & Mortgage Implications
Even though house price growth has considerably slowed, the predominant effect of high mortgage rates has been the decline in sales. Still, 2023 is expected to witness a million property sales completions, the lowest since 2012.
Mortgaged sales are predicted to decline by 28% compared to the previous year, while cash sales might see a mere 1% drop. Given that homeowners with a mortgage usually make up a third of annual property sales, many are opting to wait for more favourable mortgage rates before making a move.
Landlords & The Buy-to-Let Market
The buy-to-let market is also feeling the pinch. Mortgaged buy-to-let purchases contribute to about 8.0% of the UK’s property sales. However, the southern England region’s high mortgage rates now necessitate buy-to-let investors to have 40-50% of the property’s value in equity for viable returns. Consequently, there will likely be a decrease in new investments this year.
On the flip side, more landlords are choosing to sell homes previously rented out, leading to an increase in supply for homes that are typically 25% cheaper than the broader market, appealing to first-time buyers.