Zoopla: Property asking prices fall 5% amid rising mortgage rates

Almost half of sellers have had to cut their asking prices as rising mortgage rates continue to slow down the property market. 

Zoopla’s latest house price index showed 42% of house sellers shaved 5% off their asking prices in June in order to achieve a sale – the highest proportion it has recorded since 2018. The report added sellers have to be “very realistic” if they want to secure a sale. 

It comes after previous figures from the property website showed agreed property sale prices reached their highest point of the year in May.

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One in six (15%) sellers are having to shave more than 10% off the initial asking price to get a sale over the line, Zoopla said.

Rising interest rates have delivered a hit to house hunters’ purchasing power. Mortgage rates have increased by over 1% since the Spring, Zoopla said. They’re currently averaging between 5% and 6%, compared to 4.5% earlier this year. 

Mortgage rates slow down the property market

The mortgage market has been in turmoil over the past few weeks. Lenders have been temporarily pulling mortgage deals before putting them back on sale amid expectations that interest rates will remain higher for longer. 

The Bank of England pressed ahead with a 0.5% hike to its base rate on 22 June, taking it to 5% – its highest level in 15 years. 

And lenders are pricing in further hikes to the base rate, which is going to make affordability a bigger issue. “Our view remains that 5% mortgage rates represent a tipping point, beyond which house prices will post annual price falls with lower sales volumes,” Zoopla’s report said. 

While the report noted sales recovered slightly over the first half of the year, it added that “sales momentum over (the first half of 2023) is not going to be maintained into (the second half)”. 

“Higher mortgage rates will hit buying power and squeeze more buyers out of the market, bringing a return to modest quarterly price falls.”

Zoopla said its own data indicates there have been fewer potential buyers in recent weeks than there were a year earlier.

But it added that the number of new sales being agreed continues to run above the general average in Scotland, the north east of England and London.

Zoopla’s report said “it’s the most expensive markets, and those where prices have risen the most in recent years, where future price falls are likely to be concentrated”.

The report said the East of England, south west England, the East Midlands and south east of England “are areas where house prices appear that they need to adjust the most”.

Mortgage help

Chancellor Jeremy Hunt met with lenders following the BoE’s latest hike in an attempt to secure help for mortgage holders struggling with higher repayments. Lenders pledged to offer more flexibility with their payments as part of a series of support measures. 

Among the measures, borrowers will be able to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to.

Both options can be taken without a new affordability check or it affecting their credit score.

Lenders have also agreed to implementing a 12-month minimum period before repossessing homes. 

Mortgage-reliant movers account for 7 in 10 of property purchases, and higher mortgage rates will deliver a hit to affordability. “The more rates increase, the greater the impact on the number of buyers in the market,” said Zoopla.