Higher mortgage rates sees house buyer demand plummet by 40%

Higher mortgage rates sees house buyer demand plummet by 40%

0:01 AM, 28th July 2023, About 11 months ago

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The UK’s housing market has been hit hard by soaring mortgage rates, resulting in an 18% drop in buyer demand over the past two months alone, one property platform reveals.

However, Zoopla’s latest house price index reveals that the drop in buyer demand since last year is a shocking 40% .

Reasons for that include the recent spike in mortgage rates and buying power being badly affected.

Annual house price growth has also slowed significantly, with a 0.6% rise, but homeowners in southern England have seen price falls.

‘Higher mortgage rates have hit home buyer demand’

Zoopla’s executive director, Richard Donnell, said: “Higher mortgage rates have hit home buyer demand once again after a sustained improvement over the Spring as mortgage rates fell to 4%.

“House prices increased slightly over the last three months to June, but higher mortgage rates and weaker demand mean we expect a return of modest price falls in H2.”

He added: “Overall, we expect prices to be 5% lower by the end of the year, still 15% higher than pre-pandemic levels.”

Mr Donnell also points out that the impact of higher mortgage rates is not uniform across the country, and this depends on housing affordability in local markets.

He said: “Activity levels and prices in Southern England have been hit hardest by higher borrowing costs, while the most affordable parts of the UK continue to see prices rising slowly.”

‘What goes up must come down’

The head of personal finance at Hargreaves Lansdown, Sarah Coles, said: “What goes up must come down, and when it comes to house prices, the higher they rise, and the faster they move, the more risk they face of dropping like a stone.

“In southern England, where property prices are highest, mortgage rate hikes have hit harder, and prices have fallen further.

“Mortgage rate rises have taken a real toll, cutting buyer demand by almost a fifth (18%) in two months.

“This isn’t as much of a drop as after the mini-Budget, but demand was lower to start with, so as a result, year-on-year demand is down 40%. This is depressing prices.”

She adds: “The North/South divide is alive and well. In the South of England, where prices are higher and so mortgages are bigger, hikes in rates have a disproportionately large impact.

“It’s making it far harder for people to stretch to get onto the property ladder or into a bigger property, so demand is dropping, and sellers are being forced to cut asking prices further.”

Three and four-bedroom family homes have seen a decline in new sales

The data from Zoopla also shows that three and four-bedroom family homes, which were once a hot commodity in the housing market, have seen a staggering 41% decline in new sales.

This drop can be attributed to cautious buyers adopting a ‘wait and see’ approach in response to the uncertainty brought about by the higher borrowing costs.

Not all areas have been equally affected, though. More affordable regions, such as Halifax and Wolverhampton, have shown resilience and remain relatively shielded from rising mortgage rates.

These areas are still experiencing annual house price growth of more than 3.5%, providing a glimmer of hope amidst the gloomy housing landscape.

Zoopla is also predicting that there will be further moderate price falls – mostly in southern England – with a potential 5% drop.

‘Interest rates have forced others to be more cautious’

The head of sales at Chestertons, Matt Thompson, said: “Although there still is a vast number of buyers wanting to move as soon as possible, rising interest rates have forced others to be more cautious, review their financial situation and calculate a more conservative budget.

“Whilst this resulted in fewer new buyers entering the market last month, we expect activity to pick up again once buyers have adjusted their criteria and lenders are bringing more products to the market again.”

He adds: “Recently, the property market has been predominantly driven by buyers who are seeking a home rather than an investment.”

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