Sellers are accepting bigger discounts as house prices slow

House price growth slowed further in June as rising mortgage rates eroded purchasing power and sellers accepted bigger discounts to move their homes.

More than two-fifths of sellers (42 percent) will accept offers more than 5 percent below the asking price — an almost three-fold increase from the 14 percent they did in June last year.

It’s also the highest share since 2018, according to Zoopla’s latest home price index.

With buyers making harder bargains, the price of the average home in the UK rose 1.2 per cent in the year to June, down from growth of 1.9 per cent in May.

About 15 percent accept even bigger discounts of more than 10 percent below the asking price.

All in all, the average discount on the asking price has risen to 3.8 percent.

Zoopla expects house prices to fall in the second half of the year as mortgage rates rose again last week and reached 6 percent.

It said mortgage rates above 5 percent represent a “tipping point,” above which house prices will see annual price declines and the number of agreed sales will decline.

“Firmer prices this spring show that 4-5 percent mortgage rates are manageable, but the longer rates stay above 5 percent, and closer to 6 percent, the increased purchasing power will result in lower new sales and prices,” Zoopla said.

It expects house prices to fall by up to 5 percent this year, with most of the falls concentrated in southern England.

Richard Donnell, executive director at Zoopla said: ‘Declining mortgage rates in the first half of 2023 boosted sales and led to higher prices.

“This will turn around in the second half as higher mortgage rates hit purchasing power at a time when sellers must accept bigger discounts on asking prices.”

However, the transition to higher borrowing costs will take time, according to Zoopla.

Lower sales, heading for 20 percent less than last year, were the first impact.

Sales negotiated in the past four weeks were still 8 percent above the five-year average as households negotiated cheaper mortgage deals.

However, Zoopla said there were major regional differences in underlying market conditions.

Market activity is holding up better in Scotland, the North East and London, where prices have stalled.

But in southern England and the Midlands, where house prices rose the most during the pandemic and homes are therefore less affordable, market activity was weaker as buyers are more sensitive to higher borrowing costs.

House prices fell in Aberdeen, Belfast, Cambridge and London.

They rose in all other major UK cities, with Nottingham and Birmingham seeing the strongest annual growth at 2.9 per cent and 2.7 per cent respectively – although that was a far cry from last year’s double-digit growth.

In recent weeks, Zoopla has also observed a sudden increase in the supply of homes for sale, with 18 percent more homes being offered in the past week, and a drop in demand, with 14 percent fewer buyers on the market. This poses further downside risk to prices.

“An increase in supply would increase choice for buyers and give them more room to negotiate – while also driving larger home prices down,” it said.