Zoopla’s deep dive into house price changes and investment potential

The latest market update from the research team at property portal Zoopla gives a steer for investors on what’s hot and what’s not right now.

There are three key headlines:

• Average house prices have fallen 1.3 per cent over the last six months but the speed of falls has been slowing as buyer confidence improves and more sales are agreed;
• There are distinct differences in the strength of demand and the number of sales across the country. Demand and sales agreed are running above the five-year average in Scotland, the North East and London, which have been the best-performing regions over recent weeks;
• In contrast, demand for housing in regions in southern England is lagging behind as these regions posted above-average house price growth in recent years, ahead of earnings. Annual house price growth has slowed in key cities including Oxford (up just 0.1 per cent), Cambridge (up 0.3 per cent), and Reading and Brighton (each up 0.8 per cent). 

Despite more sales, sellers need to remain realistic with asking prices to attract sufficient buyer interest. 18 per cent of homes currently listed for sale on Zoopla have had the asking price cut by more than five per cent, down from 28 per cent in February. 

A proportion of landlords continue to sell homes in the face of higher mortgage rates and rising costs. Just over one in 10 homes currently listed for sale on Zoopla were previously rented out - down from a pandemic-driven peak of 14 per cent in 2020 when rents were falling in London and other major cities. 

Historically, around half of these homes listed for sale return to the rental market having been unable to find a buyer - or are bought by another investor. This proportion has fallen to a third more recently as more landlords look to cash in on capital gains to pay down debt or fund retirement. 

The average price of a previously rented home is £190,000, 25 per cent below the average value of an owned home. These properties appeal to first-time buyers who often want to buy cheaper doer-upper homes. 

The increased supply of cheaper homes will be supporting sales activity from first-time buyers (an important group who accounted for over one in three sales last year) in the market. 

Zoopla says the decline in house prices since last autumn has been modest in comparison to some expectations. 

The biggest impact of higher mortgage rates and the cost of living is on sales volumes which, while starting to rebound, are on track to be 20 per cent lower than last year. 

The impact of mortgage rates on house prices has been tempered by mortgage regulations introduced in 2015. All new borrowers have had to prove to their bank that they can afford six to seven per cent mortgage rates even though they might have been paying one or two per cent. This means that the market has been effectively operating at higher mortgage rates. 

The portal claims banks are currently testing whether borrowers can afford eight per cent mortgage rates which have squeezed more buyers out of the market. 

The latest inflation figures have increased the likelihood of further interest rate rises which would result in mortgage rates increasing once again. This would impact demand and cut-short the current recovery in buyer confidence. The further mortgage rates edge above five per cent, the greater the impact will be on house prices.

Richard Donnell, executive director at Zoopla comments: “Falling mortgage rates in recent months together with the strength of the labour market has brought more buyers and sellers into the market. There are still fewer buyers in the market than a year ago, but sales are still being agreed with more homes to choose from. 

“Sellers shouldn’t get carried away by more positive data on the housing market and need to price their homes realistically if they are serious about moving home in 2023. Home buyers remain price sensitive with one eye firmly on the outlook for the economy, the cost of living and the trajectory of mortgage rates which appear likely to edge higher in the coming weeks.”