Home prices are rising as lower mortgage rates stimulate buyer demand and second-home owners sell

Lower mortgage rates helped boost buyer demand and property sales last month, leading to house price increases, new data from Zoopla shows.

But buyers remain ‘price sensitive’ and 37 percent of recently agreed sales were agreed more than 5 percent below the initial asking price.

With changes to council tax rates for second homes looming in certain locations, the number of homes for sale in places like Truro, Torquay and Bournemouth has increased by more than 40 per cent compared to the September average over the past seven years, Zoopla added .

House prices rose 0.7 percent in the year to August, compared with -0.3 percent at the same point a year ago.

Annually, Northern Ireland and Scotland saw the biggest spike in property prices, while those in the South East of England, the East of England and the South West fell.

The fall in mortgage interest rates stimulates demand

Buyer demand was 26 percent higher last month than a year earlier, according to Zoopla’s latest British house price index.

Richard Donnell, executive director of research at Zoopla, said: ‘Home buyers are benefiting from the lowest average mortgage rates over 15 months.

‘This supports double-digit growth in all key measures of sales market activity. Annual house price inflation is positive, but remains below 1 percent.’

According to Zoopla, the average mortgage rate for a five-year 75 percent loan-to-value agreement is 4.3 percent, down from 5.5 percent a year ago, and the lowest since May 2023.

Zoopla said: ‘The intense competition between lenders is creating attractive rates for buyers, especially those with larger amounts of equity.

‘The rising sales volumes are being supported by the fact that there are more homes for sale, an increase of 12 per cent compared to this time last year.’

The number of agreed sales last month was 25 per cent higher than a year ago, the data shows, with big spikes in the East Midlands and North East.

Buyers are also being drawn to the market as more homes come onto the market, including from second home owners keen to avoid new council tax rules, and landlords expecting changes to capital gains tax in the coming Budget.

It added: ‘A fifth of homes currently for sale were previously on the market in the last two years. As market conditions improve, setting the right price is important to attract buyers. The same applies to a fifth of homes that have been for sale for more than six months.

“Sellers must price wisely to secure a sale.”

> Find the best mortgage for you with our rate finder

House prices are still rising, but buyers are cautious

The latest data from Zoopla shows that property prices rose 0.7 per cent in the year to September, compared to -0.3 per cent a year ago.

Affordability remained a ‘constraint on house price growth’, especially in southern England, Zoopla said.

In the south-west, south-east and east of England, property prices were lower last month than at the same point a year ago.

At the other end of the spectrum, Northern Ireland saw prices rise 5.7 percent from a year ago, after previously underperforming the rest of the market.

Prices: According to new data from Zoopla, property prices have increased by 0.7% year-on-year

Deals: A graph showing the percentage of sales that are 5% or more below asking price

In terms of urban house price growth, Belfast saw property prices rise by 5.1 per cent in the past year to an average of £178,200.

Manchester, Liverpool, Glasgow and Leeds experienced growth of 2.3 percent, 2 percent, 1.9 percent and 1.7 percent respectively.

Cambridge though. Aberdeen and Portsmouth saw their average property prices fall by 0.1 per cent, 1 per cent and 1 per cent respectively in the past year, according to Zoopla.

Changes in budget taxes lead to caution

Speculation is rife that Rachel Reeves could increase capital gains tax in the autumn budget later this month. As more investors and second home owners sell, the number of properties listed increases.

Zoopla said: ‘Higher mortgage rates have forced some landlords to sell, with 13 per cent of homes for sale previously rented.

“Most of these (53 percent) are in London and the South East, where modest yields, higher mortgage rates and low house price growth have affected returns for investors in recent years.”

Chain Reactions: A diagram showing the listing status of properties

Beware of bills: Threatening changes to council tax for second homes appear to have a significant impact on the housing market in certain locations

Impending changes to council tax on second homes appear to have a significant impact on the number of homes for sale in certain areas.

From April 2025, some second home owners in England could have to pay twice as much council tax thanks to a new law.

To give one example, from April 1, 2025, Cornwall Council will charge a 100 percent premium on council tax for second homes.

Not all municipalities will adopt the plans and in some cases certain exceptions will be possible.

The number of homes for sale in locations such as Truro, Torquay, Exeter, Lincoln and Bournemouth has increased by more than 40 per cent in the past seven years compared to the September average, according to Zoopla.

It added: ‘Annual house price growth is negative in these areas, while rising supply keeps prices in check.’

Nigel Bishop of Recoco Property Search said: ‘Second home owners and investors looking to rent out properties are facing drastic changes as some local authorities charge or will charge double council tax on properties that have been vacant for more than a year.

‘We see more and more second home owners wondering whether maintaining their holiday home remains a good financial investment.’

What next for house prices?

‘Low single digit’ property price inflation looks likely in the coming months, according to Zoopla.

It said there was “sufficient market activity” to attract new buyers willing to make offers on reasonably priced homes.

While lower mortgage rates are helping to boost sales, Zoopla said the outlook for interest rates remained ‘far from certain’.

It said: ‘Current fixed mortgage rates already reflect the extent to which financial markets expect UK interest rates to fall over the next two to five years.’

Zoopla said it thinks mortgage rates will reach ‘the high 3 per cent and low 4 per cent’ by 2025.

It added: The outlook is more positive than a year ago, but sellers must manage their pricing expectations if they are serious about making a sale in a timely manner.”