Zoopla expects house prices to remain ‘subdued’ despite surge in buyer demand

Housing market activity has surged off the back of the cheapest mortgage rates in months, new data from Zoopla has shown.

According to the property website’s house price index (HPI) for September, buyer demand and agreed sales were up by around a quarter year-on-year thanks to falling lending rates in the wake of the August interest rate cut. However, it found affordability constraints have continued to keep UK house price growth subdued.

The regions that were seeing the biggest increases in sales were the East Midlands (+32% compared to a year ago) and the North East (30%), with all areas of the country seeing the number of agreed sales rise by at least 10%. These boosted volumes were supported by an increase in the number of homes coming to the market, with Zoopla finding that stock was 12% up annually.

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It said the figures showed that confidence was improving among sellers. But it added that a significant proportion of the properties for sale (13%) were previously rented out, backing up recent buy-to-let data from Rightmove, or may have previously been second homes.

The news comes as the housing market braces itself for chancellor Rachel Reeves’s upcoming Budget. With speculation growing about potential tax rises, there have already been signs that owners of top-end homes have been selling up to avoid facing a prospective raid on their assets by the Treasury.

Zoopla: sellers ‘returning to the housing market’ for first time in two years

The property website’s analysis suggested many people are coming back to the housing market for the first time since Liz Truss’s Mini Budget in September 2022. The fiscal statement led to a spike in mortgage rates, which created a volatile market that subsequently saw two distinct surges in rates.

But this volatility appears to have subsided and lending costs have fallen significantly. According to Zoopla, the average five-year 75% LTV mortgage is now 4.3% having been 5.5% 12 months ago - the lowest rate since May 2023. With the Bank of England hinting that interest rates could fall more rapidly than previously thought and with greater competition among lenders, mortgages could get even cheaper as we head into the winter.

While this movement has been enough to bring many new buyers to the market, the analysis also showed that selling remains a challenge. It found that not all of the homes being listed were brand new to the market, with a fifth of the properties for sale having been listed before over the last two years. A further 20% of homes had been listed for more than six months, suggesting that it remains a buyer’s market.

Zoopla said even more stock may come to the market over the coming months, if speculation about Budget tax hikes proves to be correct. It has already found that 32% of properties for sale are chain-free, which suggests that they were previously second homes.

It has also seen a surge in new market entrants in second-home hotspots. Bournemouth, Exeter, Lincoln, Torquay and Truro postcodes have all seen the number of homes coming to market soar by more than 40% against the seasonal average. Such has been the effect of this glut of supply that house price growth has become negative in these areas. The website said plans to double council tax on second homes in many English local authority areas in 2025 could be a reason for this change.

Supply increase to keep house prices in check, Zoopla says

Over the year to August 2024, Zoopla found that UK house prices had gone up 0.7% to an average of £267,100 thanks to the increase in sales activity. While it expects this rate of growth to increase over the coming months, it said the rise in the number of homes coming to market would keep house price inflation down.

The highest rate of price hikes in the UK was seen in Northern Ireland, where home values have surged 5.7% year-on-year. Scotland came next with growth of 2.2%, with the North West not far behind on 2.1%.

Despite London seeing 0.5% annual value growth, the rest of the South of England remained in the red. Homes in the East of England were 0.9% cheaper than a year ago, while the South West (-0.3%) and South East (-0.2%) saw smaller reversals.

In terms of how city-level property markets performed, Belfast came out on top with a 5.1% annual change in house prices. Manchester (2.3%) and Liverpool (2%) were the next biggest growers.

At the other end of the spectrum, Portsmouth and Aberdeen saw the biggest reversals, with deflation in the two cities hitting 1%. In the 20 cities that Zoopla covers, it found the average price was £307,100 - 0.8% higher year-on-year.

Is now a good time to sell my house?

Despite improving market confidence, Zoopla has said sellers still face compromises if they put their properties on the market. It found that 18% of the homes on sale in September had had to cut their asking prices by 5% or more to attract a buyer.

Richard Donnell, executive director at Zoopla, said: “Lower mortgage rates are delivering a much needed confidence boost to homeowners, many of whom have sat on the sidelines over the last two years.

“Market activity is up across the board and expectations of lower borrowing costs will continue to bring buyers and sellers into the market. Speculation over possible tax changes in the Budget and the impact of previous tax changes are continuing to add to the growth in the number of homes for sale. We remain in a buyer’s market and greater choice of homes for sale will keep house price inflation in check into 2025.“

The website added that anyone looking to sell should manage their expectations when it comes to pricing, especially if they want to achieve a sale in a timely manner. And it warned that while its outlook is more positive than it was a year ago, there continues to be uncertainty over what will happen to interest rates in 2025 as a result of global events, such as the war in the Middle East. At present, it expects mortgage rates to settle between 3.5% and 4.5% in the New Year, which means sales volumes should remain healthy.