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Property sellers are accepting average discounts to asking prices of £18,000, as higher mortgage rates and increased supply create favourable conditions for equity-rich UK buyers.
According to data from housing site Zoopla, in the first half of November sellers accepted the largest gap — on average 5.5 per cent — between asking and sales price in five years.
Some potential buyers have been priced out of the UK housing market by the increased cost of borrowing. Though lenders have cut their rates recently, the average rate for a five-year fix is 5.68 per cent, according to finance site Moneyfacts. The rate for a two-year fix is 6.08 per cent.
Sellers are putting more homes on the market, boosting buyer choice but also their negotiating power. Mortgaged homeowners are also coming under pressure due to higher borrowing costs, with arrears creeping up, albeit slowly.
“We’re coming off a very hot pandemic period where people were getting 100 per cent of asking price — which is not normal,” said Richard Donnell, research director at Zoopla. “Now there’s some flexibility and more room for negotiation.”
Sales volumes are 15 per cent higher so far in November than a year ago, and 5 per cent higher than in 2019. The market is on track for 1mn sales completions in 2023, about one-fifth down on the recent annual average.
House prices are falling across the UK in all regions and nations except Scotland and Northern Ireland, according to Zoopla’s index. House price inflation in October moved into negative territory at -1.2 per cent, down from 8.2 per cent a year ago.
However, asking price discount levels vary across the country. In London and the South East, first half November discounts are 6.1 per cent, while across the rest of the UK is the figure is 4.8 per cent.
In the capital these discounts are not being driven by higher growth in house prices, which were just 8 per cent higher in October than seven years ago. This compares with increases of 28 per cent across the rest of the UK. But the average cost of a London home remains far higher than elsewhere in the country.
The supply of homes is also showing strong signs of recovery, with 34 per cent more homes on the market than a year ago and the number of three-bed-plus houses for sale at a six-year high. The average estate agency branch now has over 31 homes for sale, up from lows of 14 at the end of 2021 during the pandemic.
Despite high mortgage rates, Donnell said demand from buyers remains strong. High rents are encouraging renters to buy. Cash buyers unaffected by borrowing costs have strengthened their hand.
Although mortgaged homeowners are being hit by higher borrowing costs, there is less pressure on them than some had feared.
“A year ago I think people thought that mortgage rates going from 2 to 6 per cent would be cataclysmic for the housing market,” said Donnell. “But I don’t think they appreciated just how much Bank of England mortgage affordability stress testing provided a lot more resilience in the market.”
Stress testing by lenders assesses whether borrowers are able to make their mortgage payments when rates are notionally three percentage points higher than the current rate.
“There aren’t so many forced sellers and there’s less stress in the system,” he said.
