House prices to fall 5% (Zoopla): should you put off a purchase?

House prices are likely to fall 5% in 2023, according to Zoopla. This would only wipe out eight months of growth (13 months in London and 6 months in Wales).

Buyer demand has fallen a third since the mini-budget – it fell 40% in the South East and 38% in the West Midlands. Interest rates are expected to drop back to 4% or 5%.

House prices are up 8.1% in a year – slightly down from 8.2% last month. Almost 7% of homes have had their asking prices cut by over 5% – higher than recent figures but lower than 2018.

Zoopla has issued its house price index for this month

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Buyers have fled the horrors of the housing market in their droves since the mini-budget, thanks to alarming interest rates and predictions that property prices are set to plunge. But this doesn’t necessarily mean sellers are safe to sell up and sit it out in the hope of a cut price deal next year either.

“A third of demand was squeezed out of the property market overnight when the mini-budget helped push rates into eye-watering and nose-bleeding territory. Zoopla estimates that if rates were to stay above 6%, we would see double-digit price falls that unwound an awful lot of price growth during the pandemic. However, mortgage rates have already started falling back slightly, and it says if rates settle at 4% or 5%, we’re more likely to see prices fall 5% in 2023.

“For a first-time buyer, this could feel like a lucky break, after such a long period of ever-increasing prices threatened to leave them stuck in a never-ending rental nightmare. However, a 5% fall  would only erode an average of eight months’ worth of price growth from the property market, and for someone in Wales it would undo growth over just six months. If you had been weighing up a purchase since the start of this year, putting it off might still leave you worse off.

“Meanwhile, for anyone who has sold up recently and decided to wait before buying, this may feel like the reward for their patience, but it depends on their situation. For someone hoping to buy an average property for £296,000, it could mean the price might drop £14,800. However, this wouldn’t necessarily mean a saving. If they rented the average property for a year while prices fell, according to Rightmove it would cost them an average of £13,944. When you add in the cost of an extra move, and bear in mind that all of this cash would go to a landlord rather than  paying down the mortgage, it feels like less of a win. Meanwhile, nothing in the property market is guaranteed, and we could see prices rise again before your rental period was over.

“Of course, by the same token, we could see prices drop further, so wait-and-see buyers could save significantly more. However, it’s a useful reminder of how difficult it is to base a property decision on an unreliable market. Nobody can really know exactly how far prices will drop, and you won’t be able to spot the bottom of the market until it’s too late. If you’re weighing up a possible purchase, the things that really matter are whether you need to move, whether you can easily afford the property and if you plan to stay there for a significant period. In all of the mental gymnastics you do to work out whether you should buy now or later, it’s important not to overlook the value being in the right home.”