Housing markets where homes cost over £300,000 are ‘more exposed to price falls’

Four in five local housing markets currently registering annual price falls have average prices of more than £300,000
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London asking prices were £525,000 in June 2023, according to Zoopla, which is an annual drop of 0.6 per cent
DANIEL LYNCH
Vicky Shaw28 July 2023

Housing markets where average property prices are more than £300,000 are particularly likely to be feeling the impact of higher mortgage rates, according to a property website.

Zoopla said areas where average house prices are more than £300,000 may be more exposed to falls in property values.

In high-cost areas such as London, where asking prices are now £525,000 on average, soaring mortgage rates are particularly impacting buying power. The average price of a home in the capital has dropped by 0.6 per cent in a year, according to Zoopla.

The website said there is “a clear split” between trends in southern England and elsewhere.

The report said: “Higher mortgage rates have a greater impact on buying power in southern England where house prices are highest.

“The barriers to first-time buyers are also greater, weakening demand from buyers who support the bottom end of housing chains.”

UK house prices

Across the whole of the UK, annual house price inflation was running at 0.6 per cent in June 2023, down from 9.6 per cent in June 2022.

“Some four in five (80 per cent) local markets (or postal areas) currently registering annual price falls have average prices over £300,000,” said the Zoopla report.

“Higher house prices mean larger mortgages, bigger deposits and a higher household income required to buy a home.

“The more the income needed to buy increases, the more households are priced out of the market, which reduces demand and pushes prices lower.”

House prices continue to increase at an above-average rate in affordable markets next to major employment centres, with the strongest annual price growth being seen in Halifax (4.3 per cent) in Yorkshire, Wolverhampton (3.7 per cent) in the Midlands and Falkirk (three per cent) in Scotland.

Richard Donnell, executive director at Zoopla said: “Higher mortgage rates have hit home-buyer demand once again after a sustained improvement over the spring as mortgage rates fell to four per cent.

“House prices increased slightly over the last three months to June but higher mortgage rates and weaker demand mean we expect a return of modest price falls in (the second half of 2023).

“Overall we expect prices to be five per cent lower by the end of the year, still 15 per cent higher than pre-pandemic levels.

“The impact of higher mortgage rates is far from uniform across the country. It all depends on housing affordability in local housing markets.

“Activity levels and prices in southern England have been hit hardest by higher borrowing costs while the most affordable parts of the UK continue to see prices rising slowly.”

Matt Thompson, head of sales at London-based estate agent Chestertons said: “Although there still is a vast number of buyers wanting to move as soon as possible, rising interest rates have forced others to be more cautious, review their financial situation and calculate a more conservative budget.

“Whilst this resulted in fewer new buyers entering the market last month, we expect activity to pick up again once buyers have adjusted their criteria and lenders are bringing more products to the market again.

“Recently, the property market has been predominantly driven by buyers who are seeking a home rather than an investment.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “There’s some better news for borrowers on the horizon, because mortgage rates may well be reaching a peak.

“On Thursday, Moneyfacts put the average two-year fixed rate at an eye-watering 6.83 per cent, adding to the mortgage misery of would-be buyers and those set for a remortgage.

“However, ever since inflation figures came in lower than expected last week, we’ve seen a shift.

“The market is pricing in fewer rate rises, so fixed rate mortgages have been getting cheaper. On Wednesday, the average two-year fix was priced at 6.86 per cent. It will take a while for lenders to reprice, but we’ve already seen HSBC and TSB cut mortgage rates, and other big lenders are likely to follow suit.

“We’re not going to see any really big movements while there are concerns that higher rates will stick around for a while, but we may well see rates get back closer to six per cent, making life slightly easier for buyers.”

Housing Secretary Michael Gove used a speech in London to set out a range of planning reforms this week, while today Prime Minister Rishi Sunak ‘stepped in’ to tackle London’s housing crisis through a review of the London Plan which aims to identify new sites to build tens of thousands of homes across the capital.

Asking house prices

UK city

June 2023

Annual growth

Nottingham

£202,800

2.1%

Edinburgh

£207,300

2.0%

Manchester

£220,300

1.6%

Leeds

£210,200

1.6%

Sheffield

£172,200

1.6%

Liverpool

£156,300

1.4%

Newcastle

£149,600

1.1%

Leicester

£227,800

0.8%

Cardiff

£257,000

0.7%

Glasgow

£143,200

0.4%

Southampton

£259,800

0.3%

Bristol

£338,000

0.2%

Oxford

£453,200

0.1%

Portsmouth

£283,500

-0.2%

Bournemouth

£344,900

-0.4%

London

£524,900

-0.6%

Cambridge

£466,300

-0.9%

Belfast

£168,200

-1.2%

Aberdeen

£137,400

-1.6%

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