Rising incomes and longer mortgage terms are helping to improve affordability, meaning the ‘over-valuation’ of properties is expected to have disappeared by the end of the year
Property values are set to climb at a slower pace than incomes over the next few years, with the typical house price currently perched nearly £20,000 above what would typically be affordable for households, Zoopla has reported.
Yet, with incomes on the rise and mortgage terms extending, affordability is on the increase leading experts to predict that the current “over-valuation” of homes will likely vanish by year’s end, the property portal suggests. Zoopla arrived at its over-valuation figure by comparing the real average house price against an “affordable” benchmark, which factors in disposable income levels, prevailing mortgage rates, and the average deposits put down by homebuyers.
The report from Zoopla states: ” House prices still look expensive on various measures of affordability. We expect house price inflation to remain muted, likely to rise more slowly than household incomes over the next one to two years.”
According to Zoopla, the average house price stands at about £264,900, whereas their calculations indicate an affordable price point of £245,200, suggesting homes are nearly £20,000 overpriced on average. Furthermore, the site notes that a three-quarters (75%) of the anticipated 1.1 million home sales for this year are either finalised or in progress.
This forecasted figure of 1.1 million transactions would surpass 2023’s total by 10%, yet it would still fall short of the 20-year average, according to Zoopla’s analysis. The report from Zoopla has a positive outlook, noting: “It is positive that sales are rising despite higher borrowing costs and shows more realism on the part of sellers and renewed, cautious confidence amongst buyers.”
The property market’s overvaluation seen at the end of 2023 and into early 2024 isn’t as extreme as previous market peaks before major downturns, according to Zoopla. Their analysis suggests: “Faster wage growth over the last three years has boosted household disposable incomes and helped offset some of the impact of higher mortgage rates.”
Richard Donnell, Zoopla’s executive director, commented on the current trends: “The housing market continues to adjust to higher borrowing costs through modest house price falls and rising incomes. Buyers using mortgages are also relying on longer mortgage terms to gain that extra few percentage points of buying power to afford a home.”
Donnell observed that the General Election campaign hasn’t greatly influenced market activity, although a typical summer slowdown is expected. He added: “Sales agreed continued to increase and more homes for sale means more buyers looking to move in the second half of the year. The timing of the first cut in the (Bank of England) base rate is a key moment and will give a boost to both market sentiment and sales activity.”
Tom Bill, head of UK residential research at Knight Frank, commented: “A new government will add a dimension of political stability when the autumn market starts in September and even if the (Bank of England base) rate is not lower by then, a cut will be imminent. Given that mortgage rates will steadily reduce as services inflation comes under control, we expect UK house prices to rise by 3% this year.”
Matt Thompson, head of sales at Chestertons, observed: “We are now in the last days of the typically busy spring market and are seeing a bounce in buyer activity. As the date for the General Election was announced, house hunters who have been on the fence due to political uncertainty have become more confident about going ahead with their purchase. As a result, we expect June to conclude with a heightened level of buyer interest.”
Myles Moloney, area sales manager at Chase Buchanan, remarked: “June’s property market to date has remained positive and house hunters with larger equity and buying power have pushed on to agree a sale.”
