There has been a notable drop in demand from buyers, which is placing downward pressure on house prices according to Zoopla,

Cost of living pressures and higher mortgage rates means the demand for homes is down by half – 50% – as buyers hold out to see what the market holds in January and early 2023, fresh data from the property portal reveals.

The number of sales being agreed are holding up better, down just over a quarter – 28%- year-on-year, but many sellers are having to accept bigger discounts – 4% off initial asking prices in November on average – to achieve a sale.

Despite this, average UK house prices increased by £17,500 in the last 12 months although Zoopla expects prices to fall by up to 5% in 2023.  Whilst buyer interest has fallen sharply, committed buyers still remain in the market.

The pandemic saw people moving from urban areas in a ‘search for space’, afforded by the onset of more flexible hybrid working and a big increase in retirement by older workers. Many buyers relocated to rural and coastal areas across the UK, pushing up house prices in the South West, Wales, Kent and Norfolk.

However, this flight to rural and coastal areas has run out of steam as demand and sales volumes have weakened in these areas as pent-up demand fades in the face of higher prices and ongoing economic uncertainty. This has hit demand in rural and coastal towns in the south of England – East Kent (-0.5% ), Torquay (+0.4%) and Portsmouth (+7%) – as well as the wider Lake District area (the Lancaster postal area) (-5%)  and Mid Wales (the Shrewsbury postal area) (-10%), which have all recorded a greater slowdown in demand and sales over 2022 than other areas nationally.

Buyer interest in affordable, accessible urban areas is holding up much better. Levels of demand, compared to the five year average, is strongest in Bradford (61%), Swindon (57%), Coventry (47%), Crewe (47%), Southend (47%) and Milton Keynes (45%) – all areas which have their own employment base, but are also adjacent too, or have good transport connections into much larger employment centres, such as London, Leeds, Manchester and Birmingham. Continued employment growth will further stimulate housing demand over 2023 in these affordable city regions.

Looking ahead to 2023, affordable urban areas and apartments are expected to see pricing perform better than the UK market. Lower value housing markets are less exposed to the impact of higher mortgage rates than higher value markets where mortgages tend to be larger.

House prices have grown the most in lower value markets over the last five years with prices in Oldham 47% higher than in November 2017, and over 40% higher in Newport, Swansea and Bolton. Conversely, inner London markets have seen prices lower over the last five years having fallen slightly in Central London (-7.5% WC and -2% in EC postal areas) since 2017. Allowing for inflation, falls are up to 24% lower in real terms.

Average earnings have risen faster in London than prices since 2017, which is slowly improving affordability, but average prices remain high by national standards and mortgage rates are now higher than last year. Whilst the inner London housing market is expected to rebound in the next 1-2 years, this requires a further improvement in housing affordability.  London house prices are likely to register above average price falls of 5-8% in 2023 which will improve affordability – supported by lower mortgage rates.

When it comes to property types, the price of flats across the UK have also underperformed the rest of the market and are likely to see increased demand in 2023 as buyers seek better value for money. The pricing of flats has lagged that of houses which have been more in demand while flats have suffered from cladding and leasehold problems.  The average value of a house (outside of London) is now 2.1x more expensive than that for flats – the greatest gap for over 20 years and an opportunity for buyers seeking value for money.

The UK’s top and bottom postcode areas ranked by 5-year house price growth to Nov-22

Richard Donnell, executive director at Zoopla, said: “2022 has been a strong year for the housing market with the second strongest year for sales in more than a decade at 1.3m. The fallout from the mini budget, with mortgage rates hitting 6.5%, brought the market to a near standstill in the last quarter.

“We expect buyers to return to the market in the new year, but they will be far more cautious and price sensitive. Serious sellers need to be realistic on price and get the advice of an agent on how to market their home. While mortgage rates will start 2023 lower, the impact on pricing will be felt more in the higher value markets of southern England than the more affordable markets elsewhere.“

Chris Druce, senior research analyst at Knight Frank, commented: “After a frenetic period for the country market, city living has come back strongly as workers have returned to the office, and the lifting of pandemic restrictions have boosted the appeal of urban living.

 “Knight Frank data shows that from Q3 2020 to Q3 2022 the number of exchanges in regional towns and cities increased 10%, while rural exchanges in the same period fell 9%,”