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The Impact of Rising Mortgage Rates on UK Housing Market

If you've been keeping an eye on the UK housing market lately, you might have noticed a concerning trend. The number of houses sold in the UK this year is on track to be the lowest since 2012, according to property website Zoopla. Around one million sales are set to be completed this year, with transactions almost a fifth lower than in 2022. What's causing this decline, and how is it connected to the cost of mortgages and rents? In this article, we'll delve into the factors affecting the UK housing market and what it means for buyers, sellers, and homeowners.

If you've been keeping an eye on the UK housing market lately, you might have noticed a concerning trend. The number of houses sold in the UK this year is on track to be the lowest since 2012, according to property website Zoopla. Around one million sales are set to be completed this year, with transactions almost a fifth lower than in 2022. What's causing this decline, and how is it connected to the cost of mortgages and rents? In this article, we'll delve into the factors affecting the UK housing market and what it means for buyers, sellers, and homeowners.

Active Mortgages - The UK's Leading Mortgage & Finance Specialists

1. The Impact of Rising Mortgage Rates

The heart of the issue lies in the rising cost of mortgages. The average rate on a two-year fixed mortgage deal is now 6.74%, according to financial information service Moneyfacts, while a longer five-year deal comes in at 6.22%. Compare this to the ultra-low rates of less than 2% that many homeowners enjoyed in previous years, and it’s clear why prospective buyers are hesitating.

2. Houses Bought with Cash: A Resilient Option

Amidst this uncertainty, houses bought with cash are expected to hold up relatively well. These transactions involve buyers who do not rely on mortgages, making them less susceptible to interest rate fluctuations.

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3. Existing Homeowners and the Mortgage Dilemma

Existing homeowners looking to move are facing a dilemma. Traditionally, they have accounted for a third of annual property sales. However, with the uncertainty surrounding mortgage rates, many are choosing to wait until the outlook becomes more favourable. This cautious approach is despite property prices falling in some parts of the UK.

4. Prospective Buyers Wait for Better Rates

New figures from the Bank of England reveal a significant drop in UK mortgage approvals in July, down almost 10%. Prospective buyers are finding affordability checks increasingly challenging, contributing to this decline. The big question on their minds: when will mortgage rates become more favourable?

5. Bank of England’s Mortgage Approval Figures

Net mortgage approvals fell from 54,600 in June to 49,400 in July, while approvals for remortgages increased slightly in the same period. The Bank of England’s ongoing effort to slow soaring prices has led to 14 consecutive interest rate hikes, bringing the benchmark rate to its current level of 5.25%.

6. Mortgage Costs: A Sharp Increase

The sharp increase in mortgage costs has had ripple effects throughout the UK housing market. Smaller, more affordable properties have fared better than three and four-bedroom homes, with some areas witnessing more pronounced price drops.

7. The Role of the Bank of England

The Bank of England plays a pivotal role in this narrative. Its mission to control rising prices has led to higher borrowing costs for mortgage-reliant buyers. The market is now awaiting a drop in rates below 5% to stimulate an “increased appetite to move home” by the end of the year, as per Zoopla.

8. Regional Variations in Housing Affordability

Housing affordability varies significantly across regions. London, with homes priced at 9.3 times average earnings, tops the list as the least affordable area. In contrast, the North East of England and Scotland offer more affordable homes, priced at 4.9 and five times average earnings, respectively. Inverclyde stands out with homes costing only 2.9 times average earnings, making it the most affordable local authority area.

9. Real Estate Insights from Surrey

Jackie Quinn, an estate agent in Surrey, shares insights from her experience. She notes that house prices have dropped in her area over the past six months, but the situation is changing as the summer holidays come to an end. The shift is driven by people moving out of London since the pandemic, seeking larger homes in the suburbs. However, some deals are falling through due to higher mortgage repayments, catching people off guard.

10. Downsizing Due to Higher Interest Rates

As interest rates continue to rise, some homeowners are downsizing to cope with the increased financial burden. This trend underscores the impact of mortgage rates on housing decisions.

Mortgage rates in the UK are rising due to the Bank of England’s efforts to control inflation and soaring property prices.

Rising mortgage rates can make it more expensive for existing homeowners to move, as they may be reluctant to take on higher borrowing costs.

Yes, there are significant regional variations in housing affordability, with London being the least affordable and some areas in the North East and Scotland offering more affordable options.

Smaller, more affordable properties tend to be less affected by rising mortgage rates compared to larger homes.

Conclusion

The UK housing market is facing challenges primarily driven by rising mortgage rates. While the Bank of England’s efforts to control inflation are essential, they have brought about uncertainty for buyers and sellers alike. The market’s recovery and increased activity depend on the trajectory of these rates in the coming months.

In a housing market characterised by uncertainty, it’s essential for both buyers and sellers to stay informed and adapt to changing conditions. The decisions made today can have a lasting impact on homeowners’ financial well-being.

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