Zoopla, the property portal, has issued a cautionary forecast for the UK’s housing market, predicting further price declines in 2024, following an anticipated 4.5% decrease by the end of 2023. Richard Donnell, Zoopla’s executive director and research chief, points to the need for an improvement in affordability to draw more buyers back into the market and sustain sales.

Donnell asserts, “House prices have proven more resilient than many expected over the last year in response to higher mortgage rates. However, almost a quarter fewer people will move home due to greater uncertainty and less buying power.” He suggests that the market will require a “meaningful reset” in affordability, with house prices needing to drop further as incomes rise, especially if mortgage rates hover around the early 2024 projections.

If mortgage rates were to decrease to 4.5% by the end of next year, Zoopla anticipates that house price growth will remain in the negative, with an average decrease of 2.0%. A quicker decline in mortgage rates towards 4.0% is expected to stimulate sales activity rather than house prices.

Donnell explains the broader implications: “Modest house price falls over 2023 mean it’s going to take longer for housing affordability to reset to a level where more people start to move home again. Income growth is finally increasing faster than inflation but mortgage rates remain stuck around 5.0 per cent or higher. We believe that house prices will post further small falls, averaging 2.0 per cent, over 2024 with 1m home moves.”

The current market analysis by Zoopla reveals a significant cooling of house price growth, from an increase of 9.2% a year ago to a current decline of 1.1%, marking the most rapid slowdown since 2009. The phenomenon, initially prominent in Southern England, is now affecting markets traditionally seen as more affordable, with four out of five local areas witnessing annual price falls.

However, the extent of these declines remains modest, with the most significant annual falls centered around commuter towns near London, such as a 3.5% drop in Colchester and a 3.3% dip in Luton. Conversely, Halifax in Yorkshire stands out with the highest annual growth rate at 3.6%.

Zoopla also notes that sales volumes have taken a hit, with a 23% year-on-year reduction in housing sales. They project that transaction levels will plateau at around 1 million in 2024, with potential for improvement if mortgage rates decline towards 4.0% in the first half of the year.

First-time buyers are predicted to be the predominant buyer group in 2023, closely followed by cash buyers. For 2024, cash buyers are expected to continue being a key demographic, together with first-time buyers who are increasingly compelled to purchase due to rising rental costs. Upsizers, particularly affected by higher mortgage rates, are likely to become more active if mortgage rates lower, thereby bolstering overall sales volumes.