Zoopla is issuing a warning today that price cuts in the sales market are likely to hit pre-pandemic levels as affordability reaches a crunch level in 2023.

The portal says that despite housing market activity holding up over the summer, the flurry of interest rate rises and speculation of more to come are now hitting home. 

Higher mortgage rates are reducing buying power which could be as much as 28 per cent if mortgage rates reach 5% by the end of the year, assuming buyers want to keep their monthly repayments unchanged, warns the portal’s research team.

It says buyers have three options – to put down a larger deposit, allocate more of their income to mortgage costs, or adjust their budgets and consider buying a smaller property possibly in a cheaper area.  

It believes that higher mortgage rates will have the greatest impact on buying power in high-value markets in London and the South East as well as regions such as Wales that have registered the greatest surge in house prices over the pandemic. Meanwhile last week’s stamp duty changes announced in the government’s controversial mini-Budget will support activity in lower value markets and help first-time buyers in southern England.

Overall now, 43 per cent of homes on the market are out of stamp duty.

However Zoopla warns that there are early signs that price sensitivity is emerging as six per cent of homes listed for sale have seen the asking price adjusted downwards by five per cent or more, the highest level since before the pandemic. 

“We believe this is a clear sign of a return to more of a buyers market after two years of a red-hot sellers market. For sellers, this means there is more of an impetus to shift their mindset when it comes to asking price, and consider local market dynamics more closely as well as the potential types of buyer for their property in the local area” says the portal – although it insists this is not the start of major price falls.

Richard Donnell, executive director at Zoopla, comments: “Measures of housing market activity have been very resilient over the summer. A surge in home values over the pandemic and the rise of mortgage rates means we face a sizeable hit to household buying power over the rest of 2022 and into 2023. 

“While the recent changes to stamp duty are welcome, supporting activity in regional markets and the first time buyer market in southern England, the increase in mortgage rates will erode much of the gains. Homeowners that want to sell their home this year need to price realistically and seek the advice of an agent on local market trends.”