The housing market is adjusting to higher borrowing costs through lower sales rather than a big decline in house prices say Zoopla in its latest House Price Index.
Mortgage rates of 4-5% remain low by historic standards albeit higher than in recent years. Assuming mortgage rates remain at this level, Zoopla predicts UK house price falls remaining in the low single digits for the next 1 to 2 years, below projections for growth in household incomes.
This will result in the house price-to-income ratio falling back to levels not seen for a decade. This would certainly set the housing market up for a rebound in activity as consumers become more confident to make large purchase decisions. Zoopla expects this rebound in activity in the first half of 2024 as people who have delayed moves while mortgage rates have spiked higher decide to return to the market. Higher mortgage rates have hit the number of moves by mortgage-reliant borrowers, however, the number of cash sales is holding steady. First-time buyers (FTB) look set to be the largest buyer group in 2023, closely followed by cash buyers.
Over the last 5 years, cash buyers have accounted for 1 in 5 sales, rising to 1 in 3 sales in 2023. FTB’s share of sales is down on recent years but still holding up as the rapid growth in rents continues to support demand. In market with cheaper house prices, FTB’ mortgage repayments are lower than rental costs – even at 5.5% mortgage rates. We expect cash buyers to remain a larger buyer group in 2024, along with FTBs as rents continue to rise at a rapid pace.