The Zoopla House Price Index shows rising mortgage rates will impact household buying power by 28% if rates reach 5% by the end of the year (assuming buyers try to keep the same monthly payments).
House prices are still up 8.2% in a year but it now looks like it is moving to a buyers’ market, as asking price cuts return to pre-pandemic levels.
The increase in the stamp duty threshold to £250,000 takes 43% of homes out of stamp duty, and supports the lower end of the market.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “When the dust settles on the chaos in the mortgage market, the ground will have shifted, and fixed rates will have risen significantly. The impact on buying power will mean some incredibly difficult decisions for homebuyers, who could end up with smaller ambitions or horribly tight budgets. This is going to take a toll on the market.
“For some, this will push the home they want out of reach. A combination of rapidly rising prices, higher mortgage rates and a wider squeeze on their finances, will mean they just can’t stretch to higher mortgage payments. Even if they’re prepared to push their budget to the limit, their mortgage lender may have other ideas. Factoring all this into mortgage affordability calculations may mean they can’t find anyone prepared to lend to them.
“Some will choose not to buy. Others will be able to boost their deposit by calling on family members, to help balance the equation. And some will need to spend less – either by negotiating a price cut or reconsidering where they can afford to live – opting for somewhere smaller, in worse condition, or in a cheaper area. For those at the cheaper end of the market, the stamp duty cut may help close the gap. However, we’ll have to see whether boosting demand in this corner of the market will end up pushing up prices and unwinding any benefit from the changes in stamp duty.
“Zoopla found early signs that buyers are less enthusiastic than they have been: 6% of homes listed for sale had seen the asking price cut by 5% or more – the highest level since before the pandemic. Although we tend to see price cuts as we enter the autumn, they’ve warned that this is likely to be an indication we’re moving into a buyers’ market.
“With all the factors conspiring against buyers at the moment, it’s difficult to see how house prices won’t soften from here. We are already seeing the first analysts forecasting price falls, and the risks of a correction have increased.”
