House prices: Zoopla says UK property market is off to ‘slow burn start’ with London flats in most demand
The housing market in the UK has got off to a slow in 2023 with demand for cheaper, smaller properties on the rise as recession fears continue to wobble the market, according to estate agent Zoopla.
Zoopla’s house price index appeared to show that buyers were holding off from entering the market and were biding their time to see if house prices and mortgage rates fell.
Richard Donnell, executive director at Zoopla, said a proportion of existing homeowners were waiting to see if “sizeable” price falls materialised and whether mortgage rates might fall back.
Donnell said demand for homes had room to improve further in the coming weeks but anyone serious about selling would need to be realistic on the asking price and needs to ensure it was in line with what buyers were prepared to pay.
With demand reaching pre-pandemic levels, supply was also regaining strength, with the average estate agent now having 23 properties for sale, an increase of nine houses from early 2022.
This increase in supply is expected to ease the pressure on prices and provide greater choice for buyers.
Demand for flats has risen, especially in London
Zoopla also noticed a preferential trend towards smaller properties, with 27 per cent of newer buyers opting for one or two bed flats – a five per cent rise from a year ago – as they face higher mortgage rates. In London, almost half of the demand is for one and two bed flats, up to 49 per cent from 42 per cent last year.
By comparison, demand for three bed houses has fallen to 39 per cent from 44 per cent across the UK.
Much of the reason behind this shift is value for money.
Outside London, the average one and two-bed flats listed for sale on Zoopla are roughly £100,000 and £150,000 cheaper respectively than the average three bed property, which would set buyers back by about £293,000.
Demand rose slightly for one and two bed flats in London, but dropped for two bed and three bed houses, according to data seen by CityAM
Donnell told City A.M.: “The London housing market has underperformed the rest of the UK in terms of house price growth for the last five years off the back of tax changes and the pandemic. In recent years, outer London and the suburbs have fared better than the more international inner London markets.
“Higher mortgage rates have hit the buying power of all households but more so in the most expensive markets. The response has been for buyers to look for lower-value homes in London or further afield.”
The largest growth in demand for flats can be seen in towns near London such as Slough, Watford, Chelmsford, Guildford and Dartford, where the price differential between a flat and a house makes it more affordable for buyers who work in London and might be able to work more flexibly.
In London, house prices have exceeded £660,000, up 6.1 per cent from the previous year.
Tom Ashwood, director of London agency Tom Ashwood Real Estate said: “Due to the interest rate rises we have seen since September, it is apparent that a large portion of our buyers are not prepared to risk overspending and therefore have reduced budgets accordingly”.
“This, in my opinion, isn’t isolated to the housing market but the wider cost of living crisis that has been heavily publicised. I will say that the appetite to buy is most certainly still there.”
Housing market in 2023
Zoopla anticipates a surge in purchases after Easter as the economic outlook visibility improves and consumers steadily regain confidence in the housing market, although this hinges on labour market strength and inflationary pressures.
The British company are optimistic about 2023, saying the housing market is “in better shape to deal with the headwinds than in previous economic cycles”.
More movement in the housing market is expected this year as buyers look to downgrade as a result of lower incomes as well as increased living and home-maintenance costs.
Ashwood explains that “the demand will automatically subside where buyers do not see a reflective price for a property that they are viewing versus what their expectations are – and when an agent lists a property at a higher price to appease the seller and win that business.
“What has to happen over time is a readjustment of price and expectation and this takes time, so undoubtedly you will see more and more reduced properties at the back end of Q1 heading into Q2.”