Higher mortgage rates have been impacting sellers in 2023, as buyers have less money available to secure the homes they’re looking for.
But the tide should hopefully begin to turn next year, as inflation remains on a downward trajectory.
‘Financial markets expect the Bank of England to start cutting rates around the summer of 2024,’ says our Executive Director of Research, Richard Donnell.
‘If mortgage rates start to fall further, this will support an improvement in demand and sales volumes later in 2024.’
However, he cautions that house prices will continue to remain under a modest downward pressure next year.
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Will house prices fall further in 2024?
‘The current repricing of homes has further to run in 2024,’ says Donnell. ‘While 5-year fixed mortgage rates have been falling below 5%, they need to fall further to bring more buyers back into the market.’
It’s obviously good news for sellers that house prices haven’t been tumbling this year, as some analysts claimed they might.
Instead there has been a soft adjustment in prices. But these reductions haven’t been enough to offset the impact of higher mortgage rates.
What’s happening with home values across the UK?
House prices are falling across all areas of England and Wales across all price bands, though the biggest falls are happening in southern England.
Southern markets that registered strong demand and fast price growth over the pandemic 'race for space' are bearing the brunt of the falls.
That said, house prices here are still well above their 2019 pre-pandemic levels.
The East is leading the way with price falls, down -2.6% on average, followed by the South East (-2.4%) and London (-2.0%).
In terms of postcodes, Colchester (CO) has seen the biggest price falls of -4% on average.
In Scotland, where housing is more affordable, prices are 1% higher.
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Sellers offering biggest discounts in 5 years
The average discount being offered by sellers is now at a 5-year high.
‘This also signals evidence of greater realism amongst sellers and a growing acceptance that what a home might have been worth a year ago is now largely academic, given current market conditions,’ says Donnell.
‘During the pandemic years, buyers had to pay the asking price to secure a property. Over the course of 2023 the gap has widened and sellers have been accepting ever larger discounts to the asking price to agree a sale.’
In the first half of this year, the average discount offered by sellers was 3.4%.
This month, the average discount is 5.5%, or £18,000 off the asking price.
In London and the South East, the average discount offered is 6.1%, or £25,000, off the asking price.
Across the rest of the UK, the discount is smaller at 4.8%, or £11,000, but it’s still the highest level we’ve seen in recent years.
One in four sellers is currently accepting an offer 10% below the asking price, but that’s likely to be because they haven’t been cutting their asking prices very quickly.
‘As more sellers adjust asking prices lower, we expect these discounts will start to return to normal levels of 3-4%,’ says Donnell.
London holds up amid price falls
One of the slowest markets in terms of house price growth in recent years, London is managing to avoid an acceleration in house price falls.
In fact, annual price falls in the capital are now lower than those being seen across the wider South East and surrounding commuter areas.
London has seen slow price growth over the last seven years of just 8%, while for the rest of the UK, house prices have risen 28%.
The result is that homes in the capital are now seen as better value for money, while a steady return to office working is supporting sales volumes and pricing levels here.
In fact, new sales have rebounded more in London than any other part of the UK over the last 2 months, leading to a slight firming in prices.
In the EC postal area, which covers parts of Islington, Camden, Hackney, Tower Hamlets and Westminster, house prices are actually up +0.6% over the last year.
There are willing buyers out there
This year, we expect the number of agreed sales to be around 1m, proving that there are willing buyers out there.
Sellers are also prepared to offer bigger discounts to their asking prices in order to agree those sales.
As we edge towards Christmas, the number of homes for sale will start declining as some sellers take their property off the market with a view to relaunching in the new year.
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