(Bloomberg) -- UK home sellers are offering smaller discounts as rising expectations of interest-rate cuts this year boost demand.

Sellers accepted an average reduction of 3.9% to the asking price this month, the least since July and down from the 4.5% between November and January, according to property portal Zoopla. The narrowing gap is a sign of recovery from a slump that saw over 18 months of markdowns in prices as inflation, high mortgage rates and a cost-of-living crisis buffeted Britain’s cash-strapped home buyers. 

“Sellers need to remain realistic on where they set the asking price if they are to take advantage of improving market conditions,” said Richard Donnell, executive director at Zoopla. “It remains a buyers market where there is much greater choice of homes for sale.”

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Prospective home buyers are anticipating softer mortgage costs as the Bank of England prepares to lower its benchmark rate following the fastest hiking cycle in decades. Markets are pricing in three quarter-point reductions this year, starting in August. But Catherine Mann, the most hawkish member of the BOE’s nine-member Monetary Policy Committee, has warned that the cuts may not be as many.

The amount of new home sales agreed between Jan. 1 and Mar. 24 rose 7% compared with the same period in 2023, as declining finance costs boosted activity, according to the Zoopla report. The average estate agency had 11% more homes available in the last four weeks than in the same period last year, as more affordable markets such as Yorkshire and the North West saw the strongest growth in sales. 

Almost half of UK house hunters are set to accelerate their purchase plans this year to beat any potential rebound in prices, according to a Bloomberg Intelligence survey published this month. Some 42% of wannabe home buyers are speeding up their plans compared with 35% in mid-2023, while the share of prospective London buyers bringing their purchases forward is even higher at 47%.

Read more: UK House Hunters Speed Up Plans to Beat Price Hike, Survey Says

To be sure, 41% of sales agreed in March were 5% or more below the asking price, though that’s receded from almost half of deals in the final quarter of 2023. The average vendor is currently agreeing to sell for £10,000 ($12,630) below the asking price, compared with £14,250 in November, Zoopla said.

In London and the South East — where home prices are still posting annual falls — the average discount to asking price is around 4.3%, compared with 3.4% across the rest of the country. In Zoopla’s view, the timing and scale of interest rate reductions in the second half of 2024 will be a key factor in whether mortgage costs decline to levels affordable enough to strengthen demand.

“The higher cost of borrowing remains an obstacle, but one that buyers are now willing to tackle with the expectation that rates will fall at some point this year,” said Marc von Grundherr, director of London-based estate agency Benham and Reeves. Still, “price remains the key compromise for sellers when it comes to securing a buyer in today’s market,” he added.

©2024 Bloomberg L.P.