Plan Insurance Blog

Why Are UK House Prices Falling For The First Time in a Decade?

The UK housing market is experiencing a notable shift, with house prices falling for the first time since 2012. This decrease is relatively modest at -0.5% over the last 12 months, but it marks a significant change in a market that has seen consistent growth over the last decade.

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Different markets in different regions

The change in house prices is different across the UK, with some regions experiencing growth while others face more substantial declines. Scotland has seen a +1.6% increase in house prices, contrasting with the South East and East of England, where prices have fallen by -1.5%. Despite these regional variations, the overall trend indicates a market cooling.

Buying behaviour is confident but cautious

This month has seen a surge in buyer demand, fuelled by increased consumer confidence and a more positive market outlook. Buyers appear to be biding their time, waiting for prices to drop or mortgage rates to decrease before committing to their next move. The Zoopla House Price Index for September 2023 echoes this trend, showing a 12% increase in enquiries to estate agents since the August Bank Holiday weekend.

However, despite this uptick in interest, buyer demand remains 33% lower than the previous year. This indicates that while confidence is improving, buyers are still cautious. The expectation is that once mortgage rates fall below 4.5%, more buyers will return to the housing market.

Buyers aren’t willing to compromise despite lessened buying power. Despite the increase in buyer interest, mortgage rates remain high, hovering over 5%, reducing household buying power by 20% compared to early 2022. However, this has yet to lead to a shift in property preferences. Buyers are not willing to compromise on the type of home they are looking for, maintaining a strong demand for specific property types and sizes. This trend suggests buyers are prepared to wait for more favourable conditions rather than settle for a less-than-ideal property.

The future of house prices

Looking ahead, the expectation is that UK house prices will have fallen by 2% to 3% throughout 2023. However, this decline is not uniform across all regions. The South of England is experiencing more significant price drops, influenced by the higher impact of mortgage rates on buyer affordability. In contrast, Scotland’s housing market remains robust, with prices continuing to rise.

The anticipated slow decrease in mortgage rates over the coming months is likely to play a crucial role in the housing market’s future. As rates fall below 5%, we should see an increase in buyer activity, helping to stabilize the market.

The current market conditions have also impacted sellers, with asking price discounts now averaging at 4.2%, the highest level since 2019. This trend is particularly evident in London and the South East, where sellers are reducing their asking prices by an average of 4.8%. These discounts reflect the increased bargaining power that buyers currently enjoy in the market.

Prices are lowering, but there are other factors at play

The UK housing market is in a period of adjustment, responding to a variety of influences ranging from regional disparities and buyer demand to mortgage rates and seller behaviour. While the overall trend indicates a decrease in house prices for the first time in a decade, the market’s future will largely depend on how quickly mortgage rates can decrease, bolstering buyer confidence and activity. For now, buyers and sellers must navigate this shifting landscape, making informed decisions based on the current market conditions.

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