Zoopla warns of a ‘double-digit’ house price drop if mortgage rates stay at 6%

Turbulence in the UK mortgage market is affecting buyer demand, according to new findings from online property portal Zoopla.

In the wake of the government’s ‘mini-budget’ last month, demand among potential property buyers has plummeted 33 percent, Zoopla said.

The recent surge in mortgage rates across the UK represents the biggest shock to interest rates since the late 1980s.

Drop: Demand from potential buyers fell 33% after last month’s ‘mini’ budget

A sharp rise in mortgage rates, which have topped 6 percent for both two-year and five-year arrangements, has made the prospect of moving up or moving up the property ladder a distant dream for a growing number of people. throughout the UK.

If mortgage rates fall back to around 4 percent next year, then the UK could face a “modest” 5 percent drop in average property prices, Zoopla said.

Should property prices fall by an average of 5 per cent next year, this would mean the average UK home would lose eight months of capital gains, with London experiencing the biggest loss in value and Wales the minor.

But, Zoopla added, if mortgage rates hold around the 6 percent mark, the UK would experience “double-digit” house price declines by 2023.

With rising borrowing costs, the proportion of buyers now looking to buy a home with cash or just a small mortgage is 48 percent, according to Zoopla.

Lenders are now also testing affordability at mortgage rates as low as 8 percent, further reducing purchasing power, the research added.

While jitters abound in the broader economy, Zoopla said it doesn’t think it will see “signs of any price impact” in the final quarter of this year.

He added: “It usually takes several months for prices to adjust to weaker demand.”

Your area: Predictions for property price changes across the UK, according to Zoopla

Your area: Predictions for property price changes across the UK, according to Zoopla

Financing Options: Home Purchases by Cash Buyer and Mortgage Size

Financing Options: Home Purchases by Cash Buyer and Mortgage Size

UK house prices have risen 8.1 percent so far this year amid strong demand and a large number of agreed sales in the last six months, according to Zoopla. In the year through September, property prices rose 8.2 percent.

The annual growth rate is starting to slow in all areas, Zoopla added, and this will accelerate further in the first months of next year, he said.

Looking ahead, Zoopla said “sustained” 6 percent mortgage rates would lead to “double-digit” property price declines, eroding paper gains during the pandemic, but “few negative equity cases.” “.

It added: “A more likely outcome is a drop in mortgage rates toward 4 percent and a modest decline in home prices to as low as 5 percent during 2023 with 1 million sales.”

Zoopla said: “If mortgage rates fall rapidly in the next quarter, the outlook for next year will be very different compared to the outlook for mortgage rates to remain at or above 6 percent for the next 12 months.”

A strong labor market and tight supply will support prices, but markets in the south of England will feel the brunt of any downward price decline, the property portal added.

The number of failed sales is also rising, according to Zoopla, driven mainly by the lack of affordable mortgages. That said, the research found that ‘pent-up demand’ remains strong, with 1.3 million sales due to be completed by the end of the year.

About 7 percent of homes for sale this month have seen their asking price reduced by about 5 percent, which is up from recent months but still below 2018 levels.

Buyer interest in the south east has fallen 40 per cent in the last month and 38 per cent in the West Midlands. Drops in buyer interest are also evident in more affordable regions like the North East and Scotland, but to a lesser extent, Zoopla said.

Fluctuations: Demand and new sales fell below the five-year average, says Zoopla

Fluctuations: Demand and new sales fell below the five-year average, says Zoopla

Property price growth is beginning to slow in all areas of the UK, Zoopla said.

Property price growth is beginning to slow in all areas of the UK, Zoopla said.

Richard Donnell, CEO of Zoopla, said: “The outlook for the coming year depends on the path of mortgage rates, which affects the purchasing power of households already facing higher costs of living.”

‘Mortgage rates were always headed for 4-5 per cent and the shock of the mini budget has pushed them even higher.

“We expect borrowing costs to fall in 2023, which will alleviate some of the impact on purchasing power, but we also expect a degree of price adjustment in the face of price-sensitive demand.

Homeowners looking to sell in 2023 will need to be realistic about price and may have to forgo some of the price gains from the pandemic.

“Home prices have risen significantly during the pandemic and homeowners looking to sell in 2023 will need to be realistic about the price and may have to give up some of the price gains from the pandemic to achieve a sale.”

Caroline Pattinson, Managing Director of Pattinson Estate Agents, said: ‘It’s definitely been an interesting time in the real estate market in recent months.

‘After the mini-budget and the interest rate hikes, we saw some buyers change their minds about buying.

“However, we are not seeing all the chains collapse and the sales pipeline dwindle to nothing. Many of the people who have sales going on made a commitment to move months ago and if they had applied for a mortgage they would be buying at lower interest rates.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic..

Banks and building societies continue to lend and mortgages are still being offered and applications accepted.

However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a house?

Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for

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