High mortgage rates weigh more on the South of England than the North.

According to figures reported by Zoopla’s latest house price index, high mortgage rates continue to weigh on the housing market. House price growth has slowed to its lowest levels since 2012. The housing market continues to feel the impact of higher mortgage rates and cost-of-living pressures. This has resulted in weaker demand from buyers with fewer sales and very low house price growth.

In August, demand from buyers was 34% lower compared with the average in the same period over the last five years. The number of agreed property sales was down by 20%. The supply side has finally started to tick up compared to the previous two years, supporting these figures to an extent. The graph below highlights that the stock of homes for sale has increased by 16% compared to the last five-year average.

Southern regions and London see the largest house price falls:

The housing market recorded a growth of 0.1% in the 12 months to August, a virtual flatlining of the housing market with little growth. This is the slowest annual growth rate for 11 years since August 2012. There is, however, a clear north-south divide in house price inflation, with Scotland and most northern regions experiencing house price growth in the 12 months leading up to August. In contrast, every region in South England has seen house prices fall by up to -1% in the last year.

According to a report on the impact on affordability in different regions across the UK, Nationwide reported that affordability pressures remain particularly acute in London and the south of England, where mortgage costs have risen sharply compared to a year ago. The graph below highlights that Scotland and the North continue to be the most affordable regions, but even there, mortgage payments as a share of take-home pay have been at their highest levels for over a decade.

The pattern reflects the greater impact of higher mortgage rates on high-value housing markets. Buyers in the south of England need bigger deposits and higher incomes. This prices more buyers out of the market in the south, weakening demand and pushing prices down. However, all regions and countries of the UK are posting low single-digit house price growth. Scotland has seen the highest house price growth of 1.7%. This again reflects the pattern as seen in the graph above. Scotland and the North have had mortgage repayments near the levels of the long-run average. Therefore impacting house prices less across those regions.

What next for the housing market?

The housing market activity will slow down further as we approach the winter months with little to no growth. House prices are likely to dip further as the impact of high interest rates starts to weigh in more heavily on households by the end of this year and the first two quarters of 2024.

House prices will dip between 2% and 5% in this period. However, a strong labour market, high immigration, and wage growth will stabilise the market. Interest rates will likely decrease as banks struggle to get new business. Expect five-year rates to be below 5% by the middle of next year, encouraging people to move house.