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Rising mortgage rates cause 18% drop-off in house buyer demand

Nick Cheek
Written By:
Nick Cheek
Posted:
Updated:
28/07/2023

The rise in mortgage rates has dampened buyer demand and caused it to contract by 18%, a report from an estate agency said.

The Zoopla house price index for July suggested that the demand for homes recovered over the first half of the year and led to a rise in new sales as rates started to fall to 4%. However, in the last six weeks, this has been impacted by rates climbing to around 6%. 

Zoopla said the decline in demand was not as severe as it was during the first lockdown or directly after the mini Budget. 

Buyer demand is 6% down on 2019 levels and 40% lower than last year. Zoopla said agreed sales were only down by 17% when compared to last year and it was witnessing more “committed buyers and sellers in the market”. 

The index also revealed that the stock of available houses fell by 7% when compared to 2019, while the flow of new supply was 2% higher.

Mortgage rates to fall by autumn 

The firm predicted that mortgage rates would peak in the summer and noted that the cost of funding had fallen by 0.6% in the last three weeks. It said it would take time for this to be fed through to mortgage rates and forecast that rates would fall below 5% by autumn. 

Zoopla said house prices would decline “modestly” over the second half of the year as buyer demand weakens. However, it noted prices would still be around 15% higher than before the pandemic. 

It said sales volumes would sit between one and 1.15 million this year. 

Lowered asking prices 

Zoopla said while its index tracked achieved prices rather than asking prices, it did collect data on properties where the asking price had been reduced by at least 5%.  

It said the number of sellers lowering asking prices had returned to Q4 2022 levels with this applying to 6.5% of properties. It said that most cuts to asking prices were occurring in Southern England. 

Zoopla also noted that markets where house prices were higher than £300,000 on average were most exposed to price falls. It highlighted South End, where prices had dropped by 1.5%, Watford with a 1.2% decline and North West Hertfordshire which reported a 1.1% fall. 

The firm said house prices in London were not falling as sharply but said this could be due to the limited increases in average value compared to the rest of the county. 

It added that areas with more affordable property pricing were unlikely to record any declines at all. 

Overall, house prices rose 0.6% annually in June, compared to a 9.6% yearly increase in 2022. 

Richard Donnell, executive director at Zoopla, said: “Higher mortgage rates have hit home buyer demand once again after a sustained improvement over the spring as mortgage rates fell to four per cent. 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.

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

“The impact of higher mortgage rates is far from uniform across the country. It all depends on housing affordability in local housing markets. 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.”