Annual house price growth has slowed to 6.5% at the end of 2022, from 8.3% at the end of 2021, said Zoopla.

The property portal said that demand was back at pre-pandemic levels and is expected to rise in the coming weeks ‘as the economic outlook becomes clearer and mortgage rates continue to fall’.

But it admitted that it has been a ‘slow burn start for the housing market in 2023’, as buyers sit tight.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Wait-and-see buyers will force sellers to wake up, smell the coffee, and cut their prices.”

Flats in favour

Demand for flats is up, with over a quarter of new buyers (27%) now looking for one and two-bed flats. This rise was most prominent in towns near to major cities including Slough, Watford, Huddersfield and Stockport.

In contrast, the share of demand for three-bed houses has fallen five percentage points to 39%, although they are still the most in-demand homes across the UK.

Zoopla said it is seeing this trend of buyers seeking ‘better value for money’ across all areas of the UK. In London, one and two-bedroom flats now account for 49% of demand, for example, up from 42% a year ago.

Increased supply

The scarcity of supply in the market is also reversing, said Zoopla.

The average estate agent now has 23 properties for sale – up from a low of just 14 homes in early 2022. This will also reduce the pressure on prices.

Richard Donnell, executive director at Zoopla, said: “A proportion of existing homeowners are holding back waiting to see if sizable price falls materialise and how far mortgage rates fall back before entering the market. We believe demand for homes has room to improve further in the coming weeks. Anyone serious about selling needs to be realistic on the asking price and needs to ensure this is in line with what buyers are prepared to pay.”

Tom Ashwood, director of London agency Tom Ashwood Real Estate, added: “Managing expectations for all sellers is a vital component to achieving sales in the present market and honesty really is the best policy. What has to happen over time is a readjustment of price and expectation and this takes time, so undoubtedly you will see more and more reduced properties at the back end of Q1 heading into Q2.”