Zoopla’s latest House Price Index shows that affordability has improved the most in London out of all UK regions. The house price to earnings ratio in London will drop to single digits for the first time in 11 years, as house price growth in London has been below average since 2016. Wages are expected to continue to rise faster than house prices in 2024.
This will improve affordability further, especially in southern England. Together with mortgage rates falling to the 4-5% range, this will boost the number of sales in line with the long-run average. Looking ahead, Zoopla expects the number of property sales to recover well in the coming two to three years. More flexible working, demographic trends from an ageing population, the strong labour market and high immigration will all encourage people to move house. Mortgage rates are starting to drift lower and are expected to fall below 5% later this year.
But it’ll be a drawn-out process, relying on financial markets to evaluate how high interest rates need to be to bring inflation under control. Any falls to mortgage rates are unlikely to impact the market and improve affordability further until at least the first half of 2024.
Zoopla is less optimistic about house price growth, which it says looks set to stay within the +2% to -2% range for the foreseeable future.