Previously, house price falls were a phenomenon majorly experienced in the South. However, according to recent data from Zoopla, approximately 80% of local markets across the UK, including regions like the East and West Midlands and even Yorkshire and the Humber, are now witnessing a decline in home values.
Zoopla highlighted that this housing market slowdown is the most pronounced since the 2009 financial crisis aftermath. While many local markets are experiencing dips in house prices, the magnitude of these decreases is still limited. On average, house prices have come down by 1.1% annually across the country.
Spotlight on the South: Particularly in commuter towns around London and across the South East, the dips are more pronounced. For instance, Colchester has seen a 3.5% reduction in house prices, and Luton experienced a 3.3% decrease annually.
The Ripple Effect of Higher Mortgage Rates
A significant factor contributing to the current scenario is the rise in mortgage rates. As these rates increased, the buying power of potential homeowners decreased, translating into weakened demand and, consequently, falling house prices.
While the decline in house prices is concerning, the more pressing issue seems to be the reduced volume of transactions. Compared to the previous year, there has been a 23% reduction in housing sales this year.
The Mortgage Rate Dilemma
Mortgage rates have played a pivotal role in influencing home values. Zoopla cites that the recent hike in mortgage rates over the past 18 months has led to the present overvaluation in home values.
For the housing market to stabilize and demand to be revived, either house prices need to fall further, incomes need to rise, or mortgage rates need to decrease. The cost of purchasing a property, despite a decline in house prices in 2023 and mortgage rates at 5%, remains relatively high for the average UK household.
Looking ahead, assuming mortgage rates persist at their current levels, Zoopla forecasts that house price declines will continue in the low single-digit range for the next 1-2 years. There is hope, though. If mortgage rates fall closer to 4% in the first half of 2024, this could stimulate a modest revival in housing activity.
Should You Buy in 2024?
For many, this is the burning question. Some potential homeowners have chosen to wait and observe the trajectory of mortgage rates and house prices. Especially for those looking to upgrade their homes, higher mortgage rates can be a deterrent as they typically seek bigger homes, which come with larger mortgages.
However, as Karl Knipe, director of Kings Group estate agents, advises, for individuals looking at long-term residency in their new homes, the current downturn shouldn’t be a significant concern. Small fluctuations in house prices shouldn’t be a deterrent for those looking to settle.
For first-time buyers, the rapid growth in rents may be a push factor towards purchasing. As Nicholas Mendes from John Charcol points out, buying a property provides more stability than renting and is an investment for the future.
The Rise of Cash Buyers
Another trend to watch out for in 2024 is the surge in cash buyers, particularly in the luxury housing segment. Given the less appealing interest rates, the market has seen an influx of cash transactions. This preference for cash over mortgages is due to its chain-free nature, which often speeds up the sales process. This trend could pose challenges for those relying on mortgages, as sellers may lean towards cash buyers.
Conclusion
Navigating the housing market requires a blend of knowledge, timing, and sometimes a bit of luck. While the market faces its challenges, it’s crucial to remember that the UK housing market has weathered many storms. As Zoopla suggests, the current shifts might set the stage for a rebound as buyers regain confidence.