The spring/summer season is usually busiest period for the housing market. But this year, there isn’t the usual momentum as the once in a generation type affordability squeeze has forced many of would-be buyers to shelve their plans.
The housing market is tough. House prices, while falling, remain at levels many can’t afford while the recent increase in mortgage rates has pummelled buyers, and inflation is chipping away at the real value of home deposits. Many buyers are left with little option than to sit on the sidelines until they can make the numbers work.
First-time buyers are particularly feeling the brunt of the hostile environment as they have no existing equity to use to help them on their way. Many first-time buyers are playing the waiting game in hope for a fully-fledged crash in house prices and in hope of a better mortgage deal in the near future.
With reduced demand, homes tend to stay on the market for longer periods. Sellers may find it challenging to attract buyers willing to pay higher interest rates or meet their asking prices. As a result, sellers may be forced to reconsider what they deem as fair value amid current market conditions. This may ultimately lead to price reductions or stagnant home values.
The mortgage affordability crisis has cast a dark shadow over those seeking to remortgage their homes, leaving a trail of challenges in its wake. Rising mortgage rates means that many homeowners coming off fixed rate deals could be priced out of their own homes.
As the mortgage affordability squeeze tightens its grip, house prices could sag further under the weight of an uncertain market and hesitant buyers.
Myron Jobson is senior personal finance analyst at interactive investor
