Turbulence in the UK’s mortgage market is hammering buyer demand, fresh findings from online property portal Zoopla reveal.
In the aftermath of the Government’s ‘mini-Budget’ last month, demand among prospective property buyers has slumped by 33 per cent, Zoopla said.
The sudden recent increase in mortgage rates across the UK represents the biggest interest rate shock since the late 1980s.
Slump: Demand from prospective buyers fell by 33% after the ‘mini’ Budget last month
A hefty spike in mortgage rates, which have gone over 6 per cent for both two and five year fixes, has made the prospect of getting on or moving up the property ladder a distant dream for growing numbers of people across the UK.
If mortgage rates slip back to around 4 per cent next year, then the UK could be left facing a ‘modest’ 5 per cent drop in average property prices, Zoopla said.
In the event property prices fall by an average of 5 per cent next year, this would mean the average UK home would lose eight months of capital gains, with London set to see the biggest loss of value and Wales the least.
But, Zoopla added, if mortgage rates linger around the 6 per cent mark, then the UK would experience ‘double-digit’ house price falls in 2023.
With borrowing costs rising, the proportion of buyers now looking to snap up a home with cash or just a small mortgage stands at 48 per cent, according to Zoopla.
Lenders are now also testing affordability at up to 8 per cent mortgage rates, squeezing buying power further, the research added.
While jitters abound in the broader economy, Zoopla said it does not believe any ‘signs of any impact on pricing’ will be seen in the final quarter of this year.
It added: ‘Typically, it takes several months for pricing to adjust in the face of weaker demand.’
Your area: Predictions for property price shifts across the UK, according to Zoopla
Funding options: Home purchases by cash buyer and size of mortgage
UK house prices have increased by 8.1 per cent in the year to date, amid high demand and the strong number of sales agreed in the past six months, according to Zoopla. In the year to September, property prices were up 8.2 per cent.
The annual rate of growth is starting to slow across all areas, Zoopla added, and this will accelerate further into the first few months of next year, it said.
Looking further ahead, Zoopla said ‘sustained’ 6 per cent mortgage rates would lead to ‘double-digit’ property price falls, eroding paper gains over the pandemic, but ‘few negative equity cases’.
It added: ‘A more likely outcome is a fall in mortgage rates towards 4 per cent and a modest decline in house prices of up to 5 per cent over 2023 with 1million sales.’
Zoopla said: ‘Should mortgage rates fall back quickly in the next quarter, the outlook for next year will be very different compared to the prospect of mortgage rates remaining at or above 6 per cent for the next 12 months.’
A robust labour market and scarcity of supply will support pricing, but markets in southern England are to feel the greatest impact of any downward price slumps, the property portal added.
The number of sales falling through is also on the up, according to Zoopla, driven primarily by a lack of affordable mortgages. That said, the research found that ‘pent-up demand’ remains strong, with 1.3million sales set to be completed by the end of the year.
Around 7 per cent of homes for sale this month have seen their asking price reduced by about 5 per cent, which is an increase on recent months but still below 2018 levels.
Buyer interest in the South East has fallen by a hefty 40 per cent in the past month, and by 38 per cent in the West Midlands. Falls in buyer interest are also evident in more affordable regions such as the North East and Scotland, but to a lesser extent, Zoopla said.
Fluctuations: Demand and new sales dipped below the five-year average, Zoopla says
Property price growth is starting to slow across all areas of the UK, Zoopla said
Richard Donnell, executive director at Zoopla, said: ‘The outlook for the year ahead hinges on the trajectory for mortgage rates which impacts the buying power of households who are already facing higher living costs.
‘Mortgage rates were always heading for 4-5 per cent and the impact of the mini budget has boosted them even higher.
‘We expect borrowing costs to fall in 2023 easing some of the hit to buying power, but we also expect a degree of price adjustment in the face of price sensitive demand.
Homeowners wanting to sell in 2023 will need to be realistic on price and may have to forgo some of the pandemic price gains
‘House prices have risen significantly over the pandemic and homeowners wanting to sell in 2023 will need to be realistic on price and may have to forgo some of the pandemic price gains to achieve a sale.’
Caroline Pattinson, managing director at Pattinson Estate Agents, said: ‘It has definitely been an interesting time in the property market in the last few months.
‘Following the mini-Budget and interest rate rises we did see some buyers changing their mind about buying.
‘We aren’t however seeing every chain collapsing and the sales pipeline dropping to nothing. A lot of the people who have sales underway committed to moving months ago and if they had submitted a mortgage application would be buying at lower interest rates.’
What to do if you need a mortgage
Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic.
Banks and building societies are still lending and mortgages are still on offer with applications being accepted.
Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates.
This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value
What if I need to remortgage?
Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate.
Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal.
Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I am buying a home?
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to higher mortgage rates limiting people’s borrowing ability.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.
You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.
Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
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