House price reductions to secure faster sales

Home sellers wanting to move swiftly may have to sacrifice some of the house price gains made during Covid-19, according to Zoopla.

To sell their house in the current market, owners are discounting the asking price by 4.5% – an average of £14,100.

This is the finding from Zoopla’s latest House Price Index for February 2023, and it means that homeowners are giving up a third of price gains made during the pandemic.

In the present buyers’ market, this is the highest discount in house prices seen for five years. Working on statistics that the average UK house went up in value by £42,000 during Covid-19, home sellers are giving up an average 33% of this pandemic gain.

We look at the reasons for the slowing market and analyse the present situation based on Zoopla’s research.

Why are we in a buyers’ market?

We’ve seen annual house value inflation slowing to 5.3% from 8.6% last year, less demand from buyers, and sales volume falling to 20-50% lower than last year – which is still slightly ahead of figures seen in 2017-2019.

While house price inflation is set to move into low negative year-on-year by summer, a soft landing is still predicted with price falls of up to 5% in 2023. Zoopla, which predicts 1m house sales this year, finds that estate agents have on average 24 homes for sale compared to just 15 a year ago, illustrating that supply is returning to more normal levels. A greater choice of houses gives buyers more room to negotiate on price.

Widest gap between asking price and sale price for five years

Sales volumes have recovered while discounts have increased over the last five months as we have entered a buyers’ market, states Zoopla, ending the trend for offers being made over the asking price during the pandemic. Higher mortgage rates have made affordability harder for buyers and led to asking price reductions nationwide to entice buyers. While mortgage rates have fallen from their 6% high and are now around the 4% mark, homebuyers are still facing challenges compared to when mortgage rates were 2% a year ago.

This chart illustrates softening price growth in the housing market.

More houses coming to the market

While these challenges are obviously making buyers cautious, demand has risen in 2023, but it’s still half of the level of a year ago, according to Zoopla. Early 2023 sales volumes have recovered, but they’re still 24% down on this time last year.

However, unlike in 2022, the number of houses for sale is up by 60% as we approach a near-normal market supply. The market is now resembling its pre-pandemic state, with demand 8% higher and sales agreed up 1% in the month before 19th February 2023 compared to the same period between 2017-19.

Sellers are reducing their asking price due to falling demand and over 40% of homes listed with Zoopla have seen a price reduction. Small month-on-month asking price reductions are anticipated by Zoopla as we approach the summer, after that, there may be modest annual price drops of 2-3%.

Current market conditions

While overall sales are lower, there are still a lot of houses changing hands in more affordable parts of the country such as the northeast and Scotland, where mortgage rates have less of an impact. These areas are seeing higher sales figures than in pre-pandemic years. In contrast, sales in the Midlands and southern England are up to 9% lower than before the pandemic.

London’s housing market has underperformed since 2016 compared to the rest of the UK, and now sales here are 4% above 2020 levels. The annual house price growth rate in the UK ranges from +2.5% in London to +7% in Wales. Unsurprisingly, Southern England is seeing the weakest area of price growth due to the impact of mortgage rates. Above-average house price growth can be seen in northern towns such as Oldham, Dudley, and Wolverhampton near urban centres, and house price inflation is over 8%. The lowest areas of price growth are in inner London.

Postal areaAverage house priceAnnual price change (%)Annual price change (£)
OL – Oldham£166,5008.9%£13,670
WV – Wolverhampton£195,9008.8%£15,820
DY – Dudley£218,7008.5%£17,040
WR – Worcester£291,6008.2%£22,120
WN – Wigan£159,4007.9%£11,640
WC – West central London£755,400-1.4%-£11,090
W – West London£764,3000.6%£4,320
SW – Southwest London£720,2001.3%£9,520
NW – Northwest London£638,0001.5%£9,250
AB – Aberdeen£161,4001.7%£2,650
The top 5 and lowest 5 areas by annual price changes in the UK by postal area.

Return of realism to the UK housing market

Richard Donnell, executive director at Zoopla commented:

Greater realism on the part of sellers is supporting housing market activity in the face of higher borrowing costs. Many homeowners are sitting on sizable house price gains made over recent years and have more room to be flexible, accepting offers below the asking price.

Discounts to asking price have widened and while 4-5% discounts are manageable, if these were to widen further then this would point to a greater likelihood of larger house price falls. We believe the market remains on track for a soft landing in 2023 with modest price falls of up to 5% and one million housing sales.

Looking at things from a London angle, Matthew Thompson, head of sales at estate agents Chesterton’s, said:

London is very much an isolated market in the sense that demand and supply levels are different from the national picture. The capital tends to experience a chronic undersupply as demand for properties is ongoing. As such, 2023 started off with high demand from buyers booking in viewings and wanting to finalise their move as soon as possible. Sellers, on the other hand, have remained hesitant about putting their property up for sale amid economic uncertainty.

As we approach spring, which is known as the busiest period for the property market, and the Bank of England shared a more positive view of the economy, we are expecting more sellers to enter the market. This increase in properties being put up for sale will inevitably lead to a more balanced market environment and allow buyers to negotiate the asking price to a certain degree.

Property market outlook

With mortgage rates now around the 4-5% mark, Zoopla’s view is that the property market will adjust and competition among lenders will keep deals attractive for borrowers. Following the hike in values over the last two years, many sellers are deciding to lower their price expectations, and the current price reductions mean that sales are being secured.

Zoopla anticipates reasonable levels of sales in 2023 and believes that the industry can manage modest price drops if the drivers for moving remain, and people will still move houses for jobs, downsizing and retirement. The working-from-home trend and the cost-of-living crisis will also motivate others to move house.

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