According to Zoopla, the number of homes for sale has reached a five-year high, raising questions about whether house prices could fall further. There are now 20% more properties on the market compared to this time last year, indicating a significant boost in supply. This increase in available homes is double the amount seen in 2022.
However, rising mortgage rates are discouraging some buyers and movers. Experts suggest that this imbalance between supply and demand could lead to downward pressure on house prices in the coming months.
Although more homes are coming onto the market, rising mortgage rates could push some buyers to delay their plans. This shift might lead to a situation where the supply of homes surpasses demand, which could trigger price declines in certain areas. Some experts believe this imbalance between supply and demand may create downward pressure on house prices, particularly in areas where demand was already starting to weaken.
Jonathan Hopper, chief executive of Garrington Property Finders, commented that while the recent dip in interest rates is no longer providing the same boost to buyers, the increase in available homes is having an impact. He pointed out that buyers now have a much wider range of properties to choose from, which is a significant change compared to just a few months ago when the housing market was more constrained. This greater choice could allow buyers to negotiate better deals, potentially driving prices down further in the coming months.
He emphasises that the balance between supply and demand is a critical factor in determining house prices. In many areas, this imbalance is becoming increasingly pronounced. According to reports from estate agents, the number of homes entering the market is now four or five times greater than the number of potential buyers showing interest.
Izabella Lubowicka, senior property researcher at Zoopla, noted that the current increase in homes on the market is giving buyers more options. However, she cautioned that affordability remains a key issue affecting buyer budgets. Sellers need to consider this when pricing their properties, ensuring that they set realistic prices to secure a sale.
Higher mortgage rates dampen demand
Since early February, mortgage rates have started to climb once more, reversing the trend seen earlier this year. Financial markets have adjusted their predictions, moving away from the earlier expectation of multiple interest rate cuts. Instead, a “higher for longer” scenario now seems more likely. At the beginning of the year, markets anticipated up to six or seven base rate cuts in 2024, but this has been reduced to just two or three.
In response, several major mortgage lenders, including Barclays, HSBC, NatWest, Accord, and Leeds Building Society, have increased their rates. Peter Stimson, head of product at mortgage lender MPowered, suggests that current mortgage rates could put further pressure on house prices. He noted that January’s brief rise in house prices has been largely forgotten, with higher mortgage costs now cooling buyer demand. With more properties coming onto the market, buyers have more choices and can afford to be selective. This has led to a standoff between buyers and sellers, where realistically priced homes are selling quickly, while less desirable properties linger on the market. Stimson believes that although increased supply is beneficial for the market, it could continue to suppress prices until interest rates begin to drop again.
Which areas have most homes for sale? Â
Supply in the South West has surged, with estate agents now handling 2.5 times more homes than in spring 2022, according to Zoopla. Cornwall, in particular, has seen a significant increase, with 159 per cent more homes available compared to the same time last year. North Kesteven in Lincolnshire has experienced a 155 per cent rise, while Bournemouth, Christchurch, and Poole have seen a 146 per cent increase in available properties. Naturally, this increase in supply has led to longer selling times in these regions. For example, properties in Cornwall are taking an average of 20 days longer to sell than they did in spring 2022, and in Bournemouth, Christchurch, and Poole, it’s now 23 days longer, compared to a national average of 16 days.
In Wales and the East Midlands, there is also a notable rise in the number of homes coming onto the market. Over 60 per cent of the homes currently listed in these areas are priced above the regional average, which may signal a gap between what buyers can afford and what is available. The East Midlands, particularly in rural areas like southern Lincolnshire and Derbyshire, including the Peak District, is also seeing a marked increase in supply. However, homes in higher-value markets are moving more slowly, as affordability remains a challenge for buyers in regions where larger budgets are required.
Surge in bigger homes hitting the market
The number of larger homes on the market outside London has doubled since February 2022, according to Zoopla. There are now twice as many four-bedroom homes available, while the availability of three-bedroom properties has risen by 25 per cent compared to last year.
Jonathan Hopper, a buying agent, attributes the rise in sellers at the higher end of the market to debt and downsizing. Many homeowners with large mortgages are facing significantly higher monthly repayments due to rising interest rates, forcing some to downsize to manage costs. Additionally, a growing number of baby boomers are opting to move to smaller homes, not only to reduce expenses but also to free up equity for retirement. Hopper notes that for many, their property is seen as their pension, and they are beginning to tap into their built-up equity.
Despite the challenges posed by high borrowing costs, better availability of homes is helping to keep the property market moving. Hopper suggests that increased supply could prevent further price rises, particularly as interest rates are expected to decline in the latter half of the year. He also points out that this increased choice gives buyers more leverage in negotiations. With supply outstripping demand in some areas, proceedable buyers with secured financing may find themselves in a strong position to negotiate. Sellers, particularly those with larger homes outside London, may need to adjust their price expectations to reflect the current market conditions.
Could house prices still rise from here?
There are differing views on whether house prices will fall in the coming months. Some believe that the increase in the supply of homes may lead to a stagnation in prices rather than a decline.
Andrew Wishart, senior economist at Capital Economics, suggests that the rise in available homes should be seen in context. He points out that the Rics survey shows the number of homes for sale is still historically low. With unemployment remaining low, mortgage costs stabilising, and lenders offering flexible options for those struggling with repayments, Wishart doesn’t anticipate a wave of forced sales. He predicts that interest rate cuts, expected later this year, will revive the housing market in 2025, potentially leading to a 5 per cent rise in house prices.
On the other hand, Simon Gerrard, managing director at Martyn Gerrard Estate Agents, highlights a different trend. He notes that while there may be an increase in supply in housing markets outside London and other major UK cities, the situation in urban areas is different. Gerrard explains that his offices are seeing demand continuing to outstrip supply. Though there may be a seasonal rise in homes hitting the market as spring approaches, the overall picture remains one of high demand and limited availability, making home ownership a challenge for many.
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