Zoopla warns high mortgage rates could shave 5% off UK house prices in 2023

Zoopla said political turmoil in recent weeks had resulted in mortgage rates surging to highs of roughly 6%, denting buyer demand, which has fallen by a third since Kwasi Kwarteng's mini-budget.

"The spike in mortgage rates represents the largest interest rate shock for new buyers since the late 1980s and despite signs that mortgage rates will fall back, they will not return to the ultra-low levels of recent years. Mortgage rates of 4 to 5% are likely to be the new norm," said Zoopla.

However, Zoopla also noted that following "the dramatic increase in mortgage rates" in recent months, there was now "light on the horizon" for new buyers looking for a mortgage.

Zoopla stated the drop in new buyer interest was the biggest in the South East and the West Midlands, down 40% and 38%, respectively, but despite "turbulent times", the market was still said to be on track for up to 1.3m sales in 2022, down from 1.5m in 2021.

House price growth stands at 8.1% year-on-year, driven by the strength of demand and sales agreed upon during the last six months and supported by an ongoing shortage of supply.

Zoopla added that should house prices fall by 5%, the average UK property would lose eight months of capital gains, with London set to see a bigger loss of 13 months.

"Although unlikely, should mortgage rates stay above 6% for the majority of 2023, then UK house prices would fall to reflect the hit to the purchasing power of those using mortgages. Sustained 6% mortgage rates would lead to double-digit price falls, eroding any 'paper' gains achieved over the pandemic however it would result in few negative equity cases due to more equity and strong house price growth in recent years," concluded the real estate agent.

Reporting by Iain Gilbert at Sharecast.com