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The UK’s housing market is slowly transitioning into a buyers’ market as higher mortgage rates hit household buying power by up to 28% – and asking price reductions return to pre-pandemic levels.

That’s the verdict of Zoopla’s August House Price Index and they also highlight that stamp duty changes will support lower value markets and help first-time buyers in southern England.

The platform highlights that the increase in the stamp duty threshold to £250,000 takes 43% of homes out of stamp duty obligations.

Their index also reveals that UK house price growth remains stable at +8.2% year-on-year despite increasing cost of living pressures with the pandemic price gains compounding the issue of affordability – especially in southern England.

And some regions including Wales, the North East and Scotland have seen 10 years of growth compressed into just two years over the pandemic.

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Recent spike in mortgage rates for new borrowers
Despite housing market activity holding up over the summer, the recent spike in mortgage rates for new borrowers is the most important factor for the housing market this autumn.

That’s because higher mortgage rates are reducing buying power which could be as much as 28% if mortgage rates reach 5% by the end of the year – assuming buyers want to keep their monthly repayments unchanged.

To offset the hit to buying power, Zoopla says that buyers have three options:

  • They can put down a larger deposit
  • Allocate more of their income to mortgage costs
  • Adjust their budgets and consider buying a smaller property or purchasing in a cheaper area.

They add that higher mortgage rates will have the greatest impact on buying power in high-value markets in London and the South East – as well as regions such as Wales that have registered the greatest surge in house prices over the pandemic.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Price sensitivity is emerging
There are also early signs that price sensitivity is emerging as 6% of homes listed for sale have seen the asking price being adjusted downwards by 5% or more, the highest level since before the pandemic.

Re-pricing is a seasonal trend as autumn approaches but given the economic backdrop and factors including rising energy prices and rising interest rates, Zoopla says this is a clear sign of a return to a buyers’ market after two years of a red-hot sellers’ market.

For sellers, this means there is more of an impetus to change their mindset when it comes to asking price and consider local market dynamics more closely as well as the potential types of buyer for their property in the local area.

However, these price adjustments are to be expected as the market shifts from conditions where demand greatly exceeds supply.

Zoopla says it does not believe that this is a precursor for big price falls but an indication that the rate of price growth will start to slow more rapidly later this year and into 2023 as buyers react to the rising cost of borrowing.

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‘Measures of housing market activity have been very resilient’
Richard Donnell, the executive director at Zoopla, said: “Measures of housing market activity have been very resilient over the summer.

“A surge in home values over the pandemic and the rise of mortgage rates means we face a sizable hit to household buying power over the rest of 2022 and into 2023.”

He added: “While the recent changes to stamp duty are welcome, supporting activity in regional markets and the first-time buyer market in southern England, the increase in mortgage rates will erode much of the gains.

“Homeowners that want to sell their home this year need to price realistically and seek the advice of an agent on local market trends.”

‘Fixed rates will have risen significantly’
In response to rising mortgage rates impacting household buying power by 28% if rates reach 5% by the end of the year, Sarah Coles, the senior personal finance analyst at 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.”

She added: “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.”

Source: Property 118

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