Property sales in the UK have fallen by 22% from the start of the year to August compared to the same period in 2022, Zoopla’s house price index (HPI) has found.

The HPI also found that house price growth is at its slowest rate since 2012, with UK house prices rising by just 0.1% in the past year.

Although market activity is still in line with 2019, the HPI for August 2023 has shown that it is well below the levels of the pandemic years. In the past month, demand from buyers is 34% lower than average in the same period over the last five years (2018-2022).

The number of agreed property sales are also down by 20%, with more homes for sale following low supply over the last two years, which has supported this figure to a degree, Zoopla has said.

With the weaker demand for houses, Zoopla found that there has been a rapid slowdown in house price inflation. However, there is a divide between the north and the south in house prices, with every region in the south of England witnessing a -1% fall in house prices in the past year.

In contrast, all other regions and countries in the UK have posted low single-digit house price growth, with Scotland seeing an increase of 1.7%.

Zoopla has said that this pattern reflects the greater impact of higher mortgage rates on higher-value housing markets, with buyers in the south of England needing bigger mortgages and deposits, as well as higher incomes. This prices more buyers out of the market in the south, weakening demand and pushing prices down.

However, the HPI has found that first-time buyers account for one in three sales a year, with many making the move from the renting market. In recent years, low mortgage rates meant that buying was much cheaper than renting on a monthly basis, with many first-time buyers being able to buy larger three or more-bedroom houses.

With mortgage rates now at 5% and over, renting in the UK is 10% cheaper than buying on average, despite high rental growth in recent years.

This varies across the country, with mortgage repayments being up to 18% lower than rental costs in Scotland and the north-east. This compares to mortgage repayments being 24% higher than monthly rental costs in London.

Head of personal finance at Hargreaves Lansdown, Sarah Coles, said: “It’s decidedly grim down south, as a north/south house price divide leaves southerners struggling. In the south, prices are on their way down, with London seeing prices fall 1% over the previous 12 months. By contrast, prices are still on the up in the north, with Scotland posting a rise of 1.7% over the year.

“This owes a huge amount to house prices and mortgage rates. In the south, prices tend to be higher, and mortgages larger, so higher mortgage rates have taken a bigger toll on affordability. More people are priced out of the market, so demand has fallen, and house prices have dropped.

“Given that first time buyers make up a third of buyers, the relative affordability compared to rentals is also key. Overall, it’s now cheaper to rent than to buy the same property and pay a mortgage on it. However, in the north it’s still cheaper to buy, which has helped boost property prices. While mortgage rates remain higher, the geographical divide is likely to endure.”

Proposition director at PRIMIS Mortgage Network, Vikki Jefferies, added: “After record house prices in the aftermath of the pandemic, we are now seeing a relative correction and not the beginning of a crash. In fact, house prices are still going up, albeit at a slower rate, and remain well above pre-pandemic levels.

“However, with mortgage rates above mini-budget peaks, and further base rate rises expected in the coming months, affordability will continue to be an obstacle for those looking to buy a home. Navigating the market in these conditions is more complicated than in the low-rate environment consumers had become accustomed to. As a result, advisers will have to adapt in order to support customers in the best way possible.

“This means increasingly talking to clients in advance of product maturity, and exploring every option available to them, including temporarily moving onto SVR rates until fixed rates fall, moving onto tracker products or fixing for a shorter period of time. Mortgage networks can support advisers when it comes to these adaptations and help to secure positive outcomes for customers and therefore boost client retention.”

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