Zoopla predicts that property values will increase more slowly than household incomes over the next few years. Currently, the typical house price is nearly £20,000 above what would generally be affordable for many households. This discrepancy highlights the significant challenge potential homebuyers face in the current market. The gap between house prices and what is deemed affordable has been a growing concern, making it increasingly difficult for many families to achieve home ownership.
However, there are signs that rising incomes and the availability of longer mortgage terms are beginning to improve affordability. According to Zoopla, these factors are contributing to a more positive outlook for homebuyers. As incomes rise and more flexible mortgage options become available, it is expected that the “over-valuation” of properties will decrease by the end of the year. This shift could lead to a more balanced market, providing better opportunities for a wider range of people to purchase homes.
Zoopla’s analysis of over-valuation compares the actual average house price in its index with an “affordable” price. This affordable price is calculated based on households’ disposable incomes, average mortgage rates, and typical deposit sizes for home buyers. By considering these factors, Zoopla provides insights into how the current housing market aligns with what potential buyers can afford. This approach helps to understand the dynamics of affordability and anticipates a more accessible housing market as economic conditions continue to improve.
According to the report, house prices still appear high based on various affordability measures. Zoopla predicts that house price increases will likely be slower than income growth over the next one to two years.
Zoopla’s analysis shows that the average house price is approximately £264,900, while an affordable price would be £245,200. This makes the average home about £20,000 over-valued.
The site also noted that about 75% of the 1.1 million home sales anticipated for this year are either completed or currently in the sales process. Although this figure is expected to be 10% higher than in 2023, it remains below the 20-year average.
According to its report, Zoopla highlighted positive trends in the housing market, noting increased sales despite higher borrowing costs. This suggests a more pragmatic approach from sellers and a cautious yet renewed confidence among buyers.
Regarding property prices, Zoopla noted that the over-valuation observed towards the end of 2023 and early 2024 is less severe compared to the periods leading up to the financial crisis in the late 2000s and the housing market bubble of the late 1980s.
The report also pointed out that faster wage growth over the past three years has contributed to higher household disposable incomes, helping to mitigate some of the impact from increased mortgage rates.
Richard Donnell, executive director at Zoopla, noted that the housing market is adapting to higher borrowing costs with slight declines in house prices and increasing incomes.
He mentioned that buyers relying on mortgages are opting for longer mortgage terms to enhance their purchasing power in the housing market.
Despite the General Election campaign having minimal impact on market activity, the usual seasonal summer slowdown is starting to take effect.
Donnell highlighted that the number of agreed sales is continuing to rise, and an increase in homes for sale indicates growing interest from buyers looking to move in the latter part of the year.
He also emphasized that the timing of the first cut in the Bank of England base rate will be crucial, potentially boosting market sentiment and sales activity.
Tom Bill, head of UK residential research at estate agent Knight Frank, commented that the upcoming new government could bring political stability as the autumn market begins in September.
He added that even if the Bank of England base rate remains unchanged by then, expectations of a future rate cut could still influence market dynamics positively.
“With mortgage rates expected to decrease steadily as service inflation stabilizes, UK house prices are forecasted to increase by 3% this year,” stated Matt Thompson, head of sales at estate agent Chestertons.
“We are witnessing increased buyer activity in these final days of the typically busy spring market,” Thompson continued. “Following the announcement of the General Election date, hesitant house hunters are gaining confidence and proceeding with their purchases. As a result, we anticipate June concluding with heightened buyer interest.”
Reflecting on current market conditions, Myles Moloney, area sales manager at estate agent Chase Buchanan, observed, “The property market in June has remained robust, with buyers possessing substantial equity and purchasing power actively progressing to secure property sales.”
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