Zoopla’s latest House Price Index has revealed that residential property price falls are now more widespread across the country, with four in five local housing markets registering annual house price falls. But what is next for the housing market?

The impact of higher mortgage rates and cost of living pressure is now impacting house prices across more local markets, according to the property portal. Weaker demand and reduced buying power have resulted in a rapid cooling of house price growth from 9.2% a year ago to a 1.1% fall today. This is the most dramatic slowdown in price growth since 2009.

Previously concentrated in Southern England, house price falls are now impacting lower-value markets with 4 in 5 housing markets registering annual house price falls – this is up from 1 in 20 just six months ago.

The scale of house price falls is limited to low single digits with the largest annual falls registered in commuter towns around London and across the South East e.g. -3.5% in Colchester and -3.3% in Luton. Of the 1 in 5 markets registering annual house price growth, the highest growth rate is +3.6% in Halifax in Yorkshire.

Currently, the number of housing sales is feeling the impact of higher mortgage rates more than house prices – with a 23% reduction in housing sales in 2023 vs 2022. Zoopla anticipates housing transactions to stay flat at 1m in 2024, although this could improve if mortgage rates drop back towards 4% over the first half of 2024. This would support a modest rebound in activity in the first half of 2024 as people who have delayed moving decide to return to the market.

First-time buyers are on track to be the largest buyer group in 2023, closely followed by cash buyers who will account for around a third of sales in 2023. This is an increase from an average of one in five sales over the past five years.

Many cash buyers have room to be more realistic on price as they are also mortgage-free sellers who have lived in their homes for many years. Their realistic outlook on pricing will also support the number of transactions in 2024.

Looking to 2024, cash buyers will remain an important buyer group alongside first-time buyers who will continue to be pushed into buying by the continued, rapid growth in rents.

Upsizers are the group most sensitive to higher mortgage rates as they tend to buy bigger homes which require larger mortgages. The risks of big price falls are abating as a reason not to move but higher mortgage rates remain the most important factor. Lower mortgage rates would bring more upsizers in the market in 2024 and support overall sales volumes. With mortgage rates looking like they will stay higher for longer, upsizers need to be more flexible and what they want to buy and where to unlock that next move.

Looking ahead, Zoopla says housing affordability needs to improve to price more buyers back to the market and support more sales. UK house prices have fallen less than we expected over 2023. Together with 5% mortgage rates, it means purchasing a property still remains relatively expensive for an average household.

To see a meaningful reset when it comes to affordability, house prices will need to fall further as incomes increase (assuming mortgage rates remain broadly unchanged for the first half of 2024).

Assuming mortgage rates drop to 4.5% by the end of 2024, Zoopla expects that house price growth will remain negative with prices down 2%  next year. A faster fall in mortgage rates towards 4% would boost sales activity rather than house prices.

Commenting on the market outlook Richard Donnell, executive director at Zoopla, said: “House prices have proven more resilient than many expected over the last year in response to higher mortgage rates. However, almost a quarter fewer people will move home due to greater uncertainty and less buying power.

“Modest house price falls over 2023 mean it’s going to take longer for housing affordability to reset to a level where more people start to move home again. Income growth is finally increasing faster than inflation but mortgage rates remain stuck around 5% or higher. We believe that house prices will post further small falls, averaging 2%, over 2024 with 1m home moves.

“Slow house price growth and rising incomes over the next 12-18 months will improve affordability to levels last seen a decade ago, creating the potential for a rebound in home moves as consumer confidence returns.”