Zoopla’s latest House Price Index shows reduced demand for properties due to interest rates being higher than they were earlier this year, with the South of England affected more than the rest of the country.

Demand for properties in the UK has fallen by 18% in the last two months, according to Zoopla. The property website has published its latest UK House Price Index for July 2023, which reveals reduced buyer demand.

Zoopla says that demand for homes recovered earlier this year as mortgage rates fell towards 4%, which supported an increase in sales. However, mortgage rates increasing over the last six weeks towards 6% has resulted in reduced buying power and has impacted demand.

‘Higher mortgage rates have hit home buyer demand, but the impact is not uniform across the country,’ says Richard Donnell, Executive Director – Research at Zoopla. ‘Southern England is set to experience above-average price falls while some areas may not post any price falls at all.’

Interest rates reduced

However, there has been some good news where interest rates are concerned. Last week, several key lenders reduced rates slightly, including Nationwide, TSB and HSBC.

Zoopla reports that the decline in demand is less severe than seen in the wake of the mini-budget last September. Demand is 6% below 2019 levels. Year-on-year demand is down by 40%, but sales agreed are only 17% lower.

House price inflation has slowed to 0.6% annually, with modest annual price falls of 2.2% in Southern England.

The property website predicts ‘modest’ house price falls in the last half of 2023.

Housing market activity

Higher purchasing costs have resulted in buyers looking for smaller, cheaper homes or delaying moving. Family homes with three or four bedrooms have seen agreed sales fall by up to 41%. Some buyers are holding off until mortgage rates come down further.

Zoopla reports that the outlook for market activity and prices depend on the trajectory of mortgage rates, notably how much higher base rates are likely to reach to control inflation. It says that it looks ‘less likely’ that the Bank of England will need to raise rates as much as the financial markets were predicting a few weeks ago.

Inflation fell to 7.9% in June compared to 8.7% in May, which was a pleasant surprise for the mortgage industry and could signal the beginning of the end of interest rate hikes.

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