Home sellers are increasingly offering price cuts to tempt cash-strapped Britons into deals, raising the likelihood of a further drop in house prices this year.
(Bloomberg) — Home sellers are increasingly offering price cuts to tempt cash-strapped Britons into deals, raising the likelihood of a further drop in house prices this year.
Sellers’ willingness to compromise comes as the number of would-be buyers contacting agents about purchasing a home tumbled by almost a fifth in the past two months, according to a report from property portal Zoopla.
That prompted almost 7% of sellers to reduce their asking price in July — more than half above the five-year average — firming Zoopla’s forecast of a 5% decline in house prices this year as mortgage rates hover close to 15-year highs.
“Higher mortgage rates have hit homebuyer demand once again after a sustained improvement over the spring,” said Richard Donnell, executive director at Zoopla. “We expect a return of modest price falls in the second half of the year.”
UK households are facing an avalanche of cost pressures triggered by rising interest rates and the worst cost-of-living crisis in a generation. Millions of homeowners have already seen the value of their homes decline this year, with some analysts forecasting a double-digit drop in prices as the nation adapts to costlier borrowing.
Meanwhile, a regional divide in the movement of home values is emerging. Zoopla predicts that the divergence in house price growth between the south of England and the rest of the UK is set to widen over the second half of the year, with the former feeling the sharp end of rising rates due to homeowners having more debt tied into pricier properties.
Read More: UK House Prices Fall Most in Over Decade as Borrowing Costs Rise
“The impact is not uniform across the country,” Zoopla’s Donnell said. “Southern England is set to experience above average price falls while some areas may not post any price falls at all.”
House Sales Stall
What’s more, a squeeze in purchasing power is leading to fewer sales for three- and four-bedroom houses. Agreed sales for family homes dropped by as much as 41% in the past four weeks when compared to the same period over the last five years, while transactions for smaller homes and flats declined to a lesser degree.
Read More: Determined UK, London Homebuyers Key to Driving Sales: BI Survey
That’s because family homes are typically pricier than flats. Some four in five local markets currently registering annual price falls have an average home value of over £300,000 ($387,660), according to the report, though declines are softer in London due to weaker value growth during the pandemic when residents escaped to the suburbs.
Still, a cooler-than-expected inflation reading last week triggered hopes of a softening in borrowing costs, prompting HSBC Holdings Plc to cut the price of some of its fixed-rate mortgages on Wednesday. However, the average rate for fixed deals rose this week, according to Moneyfacts Group Plc, suggesting some banks are still wary of slashing the price of their loans.
“We expect activity to pick up again once buyers have adjusted their criteria and lenders are bringing more products to the market,” Matt Thompson, head of sales at estate agent Chestertons, said on Friday. However, “rising interest rates have forced others to be more cautious, review their financial situation and calculate a more conservative budget,” he warned.
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