House prices across the UK are being cut by an average of £12,125. New data published by property website Zoopla shows that house sellers are cutting prices to secure deals. Zoopla calculated that the average asking price discount is now 4.2%, which works out at an average £12,125 based on average house prices. This rises to 4.8% for homes sold across London and the South East. The discounts being negotiated by buyers are at the highest levels since March 2019, however, Zoopla still expects 2023 house prices to be 17% higher than in 2020.
Unfortunately for homebuyers, a 4.2% discount will not balance out the increased mortgage costs brought about by recent interest rate rises. The Bank of England base rate – the basis of the mortgage rates offered by banks – has risen from a record low of 0.10% in December 2021 to 5.25% today. This translates to an extra £268 per month per £100k borrowed on a mortgage, which makes a £12,125 discount seem relatively small.
Are house prices going down?
There has been a 0.5% decrease in average house prices in the last year, according to Zoopla. This is the first time in a decade that a fall has been recorded by the company’s index. However, the ONS (Office for National Statistics) has reported that house prices have actually gone up by 0.6%, while Nationwide and Halifax have gone further than Zoopla, reporting much bigger drops of 5.3% and 4.6%. This suggests that the current house price picture is not particularly clear.
It is difficult to make up-to-date calculations on changing house figures as sold prices often take a long time to trickle through. While it seems current homebuyers are pushing back against advertised prices to balance out the increased costs they are facing elsewhere, it is a long way from undoing many years of growth. You can keep up to date with what is happening with UK house prices in our article 'What is going to happen to UK house prices?'.
Will house prices go down in future?
With a huge number of UK mortgage holders on fixed-rate deals, it has taken a long time for the Bank of England’s rate rises to have a meaningful effect. However, as more and more people reach the end of their mortgage terms, it stands to reason that there will be an increased number of homeowners pushed to put their houses on the market in the face of unaffordable repayments. Sellers under pressure to sell their homes should translate to cheaper prices for buyers, but there may need to be a significant drop to bring more buyers into the market.
The number of homes sold this year is on course to be 20% lower than in 2022. Whether that trend continues will depend largely on how many new homes are built as well as future of borrowing costs. The Bank of England unexpectedly paused its series of rate rises this month, leading many to speculate whether rates will soon begin to fall. Falling interest rates will provide borrowers with more buying power to meet existing house prices. Currently, it seems that there is a gap between seller expectations and buyer affordability. However, this could change if the buying market grows and borrowing power increases.
Are mortgage rates going down?
According to figures from Moneyfacts, interest on the average five-year fixed-rate homeowner mortgage has dropped to 5.99%. This is the first time it has dipped below 6% since July. For two-year fixed-rate homeowner mortgages, the average rate is now 6.5%.
The exact rate you can get will depend on the size of your deposit. Some buyers with deposits of at least 40% of the value of the property they are buying, will be able to get a five-year fixed-rate homeowner mortgage at less than 5%.
These rates have fallen on the back of the Bank of England maintaining the base rate at 5.25%. Whether they continue to fall or start to increase again will depend on how the bank manages rates in the future. You can keep track of changing interest rates in our article ‘Best mortgage rates in the UK’.
