The latest market snapshot from Zoopla suggests landlords’ capital appreciation over the second half of this year depends almost entirely on the direction of mortgage rates.

The property portal’s latest market snapshot says latest inflation reports are starting to show the impact of higher base rates feeding through into the economy, making it less likely that the Bank of England will raise rates as much as financial markets expected just a few weeks ago.

The average mortgage rate for a five-year fixed rate at 75 per cent loan to value has reached 5.4 per cent, compared to 4.0 per cent in the spring, but Zoopla suggests that mortgage rates look likely to peak in the coming weeks.

The underlying cost of fixed rate finance for banks has fallen by 0.6 per cent over the last three weeks and while this will take time to feed through into mortgage rates, Zoopla predicts these could fall below 5.0 per cent this autumn. 

House prices started to fall in Q4 2022 as mortgage rates for a 75 per cent loan to value five-year fixed rate reached 5.5 per cent late last year and price falls reversed over H1 2023 as mortgage rates fell towards 4.0 per cent.

But the portal warns that the recent spike in mortgage rates has reduced buying power once again, pushing down prices once more. 

Richard Donnell, head of research at Zoopla, says: “We expect modest price falls over the coming months, with UK house prices expected to fall by up to 5.0 per cent over 2023. This would mean that prices are still 15 per cent higher than at the start of the pandemic. 

“Even if mortgage rates fall back into the 4.0 to 5.0 per cent window later this year and into 2024 H1, we expect house price growth to remain very low for the next one to two years.  House prices are likely to lag behind the growth in price inflation and earnings as house prices adjust to a higher level of mortgage rates. 

”Southern England and the Midlands are where house prices and incomes need to realign the most through very low nominal growth or modest price falls.

“We expect sales volumes to remain in the region of 1 million to 1.15 million this year, with demographic, social and cost-of-living factors continuing to drive the motivation to move home.”