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House prices set to fall 5% next year says Zoopla as price inflation falls to 7.8%

Slowdown: UK house price growth fell to 7.8% in October according to Zoopla

House prices set to drop 5% next year, says Zoopla: Price inflation falls to 7.8% in October, driven by sharp rise in mortgage rates

  • Mortgage rates are expected to fall back to 4-5% next year according to the real estate site
  • Average asking price discount increased to 3%
  • Demand plummeted 44% following September 23 mini-budget
  • Buyers are using rapid price inflation over the past two years to negotiate lower

House prices rose 7.8% in October, according to the latest house price index from Zoopla, with the property site predicting they will fall 5% next year.

This represents a slowdown in growth from last month, when Zoopla reported that house prices rose 8.1% year-to-date.

Quarterly house price growth slowed to 0.7% in November, the lowest rate since February 2020.

However, despite a sharp shift in market sentiment, none of the major cities or regions have seen price declines over the past three months.

Slowdown: UK house price growth fell to 7.8% in October according to Zoopla

Slowdown: UK house price growth fell to 7.8% in October according to Zoopla

Price growth was impacted by September’s ill-fated mini-budget, which saw mortgage rates rise sharply as the cost of borrowing rose due to a sell-off in government bonds – known as of gilts.

Since then, the market has been in a state of almost constant flux. In October, the average two-year and five-year fixed mortgage rates reached recent highs of 6.65% and 6.51% respectively.

And while rates are now steadily falling, buyer demand fell 44% following the budget statement.

>> Check the best mortgage rates for your situation with our mortgage finder powered by London & Country – and determine what you will actually pay using our new and improved mortgage calculator.

“There’s a really big trend to wait and see right now,” says Matt Coulson, mortgage adviser at Heron Financial. “What you tend to see is with the buy market, as soon as you hit December 1st it cools off and I think we saw that a month earlier this year.”

According to Zoopla, new sales also fell 28% compared to the same period last year, mainly due to rising mortgage rates.

Its outlook for 2023 assumes that mortgage rates will fall back to 4-5%, which will lead to a 5% drop in house prices.

This means that 5-year fixed mortgage rates should start 2023 at or just below 5%, a much better position for the housing market outlook than current rates of over 6%.

Yet, compared to rates last year and earlier in 2022, this still represents a significant increase in purchase costs for the 7 in 10 households that use mortgages.

Down: Buyer demand fell 44% after September's mini-budget

Down: Buyer demand fell 44% after September’s mini-budget

Falling real estate prices: what are the forecasts?

Zoopla’s house price forecast is more flexible than some others’ estimates.

According to the Office of Budget Responsibility, house prices will fall about 9% between the end of this year and September 2024. The change, it says, will be driven by rising mortgage rates and tougher economic conditions.

Other analysts have already predicted falls of up to 30% over the next two years.

Price declines mean that sellers are less likely to meet the asking price for their properties.

The strength of the post-pandemic market has forced buyers to pay, on average, 100% of the asking price or more on some occasions for much of the past two years.

The average discount required to make a sale has widened to 3% in recent weeks.

Zoopla expects average discounts to spread further as “we move into a more buyer’s market.”

Richard Donnell, executive director of research at Zoopla, said: “We still expect house prices to decline by up to 5% in 2023 with 1 million sales and mortgage rates falling below 5%.

“But the number of pending sales will remain supported for a series of structural, demographic and economic factors.”

The analysis notes that strong house price growth has given buyers more room to negotiate the asking price. The outlook for 2023 will depend on sellers’ willingness to adjust asking prices based on what buyers are willing to pay.

Zoopla added: ‘We see no evidence of forced sales or the need for a large double digit reset in UK house prices in 2023’

At the same time, falling demand and sales, along with an increase in the number of homes on the market, mean that the inventory of homes for sale continues to grow, albeit from a low base. Last month, the average real estate agency had 23 homes for sale.

That’s the highest since January 2021, but nearly a fifth lower than pre-pandemic levels.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed rate contract is coming to an end, or because they have agreed to buy a home, have been urged to act, but not panic.

Banks and building societies are still lending and mortgages are still being offered and applications are being accepted.

However, rates change rapidly and there is no guarantee that transactions will last and not be replaced by mortgages at higher rates.

This is Money’s best mortgage rate calculator, powered by L&C, that can show you deals that match your mortgage and property value.

What if I need to remortgage?

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to get a rate.

Anyone with a fixed-rate deal ending in the next six to nine months should consider how much it would cost them to remortgage now — and consider entering into a new deal.

Most mortgage transactions allow fees to be added to the loan and they are then only charged at the time of subscription. By doing so, borrowers can secure a rate without paying costly arrangement fees.

What if I buy a house?

Those who have agreed to buy a home should also aim to get quotes as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be wary of overstretching and prepare for the possibility of home prices falling from their current high levels, due to higher mortgage rates limiting people’s ability to borrow.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rate calculator to view offers that match your home’s value, mortgage size, term, and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the loan mortgage that’s right for you.

> Check out the best fixed rate mortgages you could apply for

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