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Home buyers with mortgages face 28% hit to buying power in 2023

Despite the relative buoyancy of the housing market activity over the summer – the recent spike in mortgage rates for new borrowers is the most important factor for the housing market this autumn. Assuming buyers want to keep their mortgage repayments unchanged, 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.

According to the executive director for research at Zoopla, Richard Donnell, to offset the hit to buying power, buyers have three options. They can put down a larger deposit, allocate more of their income to mortgage costs, or adjust their budgets and consider buying smaller properties or purchasing in a cheaper area.

Donnell anticipates that higher mortgage rates will have the greatest impact on buying power in high-value markets in London and the South East, along with regions such as Wales that have registered the greatest surge in house prices over the pandemic period.


Richard Donnell, Executive Director at Zoopla comments: “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.”

“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”, he added.

With stamp duty changes announced in 2021, this will consequentially support activity in lower value markets and help first-time buyers in southern England while the increase in the stamp duty threshold to £250,000 ultimately exempts 43% homes of from stamp duty and will boost regional markets.

Director of Benham and Reeves, Marc von Grundherr, also weighed in and commented: “Higher mortgage rates are just one factor contributing to the cost-of-living crisis, but they're certainly the most influential factor when it comes to the purchasing power of the nation’s homebuyers.  The market is now at a bit of a tipping point where house prices have continued to increase rapidly, but the reality for many buyers is that they are no longer able to stretch themselves financially. This should be an important consideration for those looking to sell and a consideration that must be made when setting your asking price.”

“Entering the market with over ambitious asking price expectations is likely to see a property languish with little to no attention from prospective buyers. Even sellers with a more sensible approach may still find that they have to reduce a tad in order to get a sale over the line.  The very best course of action in any market is to price appropriately and a good local agent will give you the best idea of current market values in your area, as well as the appetite for your home once it has hit the market.” 

Grundherr concluded: “Selling at the top end of this valuation will leave you some wiggle room to negotiate downwards to a price you are still happy with and to a price point that will ultimately get you sold.  Yes, the latest stamp duty cuts will leave buyers a little extra in their back pocket when it comes to negotiating, but don’t be fooled into thinking this marginal saving will spur them into paying way over the odds for your home. It won’t.”

Asking price reductions return to pre-pandemic levels

The research points to early signs of price sensitivity where 6% of homes listed for sale have seen the asking price adjusted downwards by 5% or more – the highest level since before the pandemic. Re-pricing is a seasonal trend as we enter autumn, however, given the economic backdrop and factors including rising energy prices and rising interest rates, it's believed to be a clear sign of a return to more of a buyers’ market after two years of a red-hot sellers’ market.

This means there is more of an impetus to shift homebuyers’ mindset when it comes to asking price, and sellers should consider local market dynamics more closely as well as the potential types of buyers for their property in the local area.

To this end, these price adjustments are to be expected as the market shifts from conditions where demand greatly exceeds supply. The research carried out by Zoopla is not predicted to be a precursor for big price falls, but an indication that the rate of price growth will start to slow more rapidly in Q4, spilling into 2023 as buyers react to the continuously rising cost of borrowing.

Pandemic effect: 10 years of house price growth compressed into 2 years

Properties in Wales recorded a 27% influx in prices over the pandemic which is the equivalent to 10 years of pre-pandemic growth compressed into just over 2 years, while a similar pattern has been observed in the North East and Scotland, largely due to below-average price growth since 2009.

Whilst London has lagged behind the rest of the market in terms of annual growth rates, the average house value in London has increased by over £100,000 since the start of the pandemic.

In contrast, the average value of a flat in London has increased just 2.4% and flat growth is deemed the weakest market segment in percentage terms within the UK as buyers prioritise space as well as working from home which has hit the London market more.


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