House prices are set to fall 5% next year, according to Zoopla, with price inflation falling to 7.8%.

Home prices set to fall 5% next year, says Zoopla: Price inflation fell to 7.8% in October driven by sharp increase in mortgage rates

  • Mortgage rates should drop to 4-5% next year, says the property’s website
  • Average discount on asking prices increased to 3%
  • Demand fell 44% after the September 23 mini budget
  • Buyers use the rapid price inflation of the past two years to negotiate lower prices

Home prices rose 7.8 percent in October, according to Zoopla’s latest home price index as the real estate site predicts they will fall 5 percent next year.

It marks a slowdown in growth from last month, when Zoopla reported home prices have risen 8.1 percent in the year to date.

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

However, despite the apparent change in market sentiment, none of the major cities or regions have recorded a decline in prices over the past three months.

Slowing down: House price growth across the UK fell to 7.8% in October according to Zoopla

Rate growth was affected by the infamous mini-balance sheet in September, which saw mortgage rates soar as the cost of borrowing increased due to the sale of government bonds – known as government bonds.

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

And while rates are now steadily declining, buyer demand fell 44 percent after the financial statement.

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“There’s a really big wait-and-wait trend right now,” says Matt Coulson, mortgage advisor at Heron Financial. “What you tend to find is that with the buy market, once you get to December 1st, it’s quiet and I think we saw that a month ago this year.”

New sales also fell, according to Zoopla, down 28 percent from the year-ago period driven mostly by higher mortgage rates.

Its forecast for 2023 assumes that mortgage rates will fall to 4-5% resulting in a 5% drop in home prices.

This means that 5-year fixed mortgage rates are likely to start in 2023 at or just under 5 percent, a much better position for the housing market outlook than today’s rates of over 6 percent.

However, compared to rates last year and earlier in 2022, it still represents a significant increase in purchasing costs for 7 out of 10 households using mortgages.

Bearish: Buyer's order fell 44% after the September mini budget

Bearish: Buyer’s order fell 44% after the September mini budget

Home Price Drop: What’s the Outlook?

Zoopla’s home price predictions are softer than those of some others.

According to the Office for Budget Responsibility, house prices will fall about 9 percent between the end of this year and September 2024. It adds that the change will be driven by higher mortgage rates and tougher economic conditions.

Other analysts previously predicted declines of up to 30 percent in the next two years.

Low prices mean that sellers are less likely to achieve the asking price for their property.

The strength of the post-pandemic market has meant buyers have, on average, had to pay 100 percent of the asking price or higher on some occasions for most of the past two years.

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

Zoopla expects average discounts to extend further as we move into a more buyers market.

We continue to expect home prices to decline by up to 5 percent in 2023 with sales of one million and mortgage rates falling below 5 percent, said Richard Donnell, executive director of research at Zoopla.

“But the number of sales going on will still be buoyant for a combination of structural, demographic and economic factors.”

The analysis indicates that the strong growth in home prices has given buyers more room to negotiate the asking price. The outlook for 2023 will depend on the willingness of sellers to adjust asking prices in line with what buyers are willing to pay.

“We see no evidence of forced sales or the need for a significant double-digit reset in UK house prices in 2023,” Zoopla added.

At the same time, lower demand and sales, as well as more homes coming onto the market, mean that the stock of homes for sale continues to grow albeit from a low base. Last month, the average real estate agency office had 23 homes for sale.

This is the highest level since January 2021 but almost a fifth below pre-pandemic levels.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..

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

However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.

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

What if I need to re-travel?

Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.

Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.

Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I’m buying a house?

Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.

Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high 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 rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.

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

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

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