Rising mortgage rates are starting to “bite harder” on the UK’s fragile housing market by forcing sellers to push down asking prices.
The average two-year fixed mortgage rate has risen to 5.55 per cent, up from 5.29 per cent last month and 4.25 per cent since before the war in Iran, according to homes portal Rightmove.
Prices for properties put on sale on the site in October were one per cent higher than the month before, at £371,015, but the group says it is seeing signs that the housing market is starting to weaken.
This one per cent price growth is below the 1.3 per cent average for October, a month when asking prices typically rise. Prices are virtually flat compared to a year ago, down 0.1 per cent.
Colleen Babcock, a property expert at Rightmove, said rising mortgage rates are “really beginning to hit buyers’ budgets” by forcing sellers to keep prices down.
“It’s an early sign that higher mortgage costs are putting pressure on affordability even in markets with lower property prices, affecting the areas and types of property that buyers can afford.”
In London, where higher home values mean taxes like stamp duty weigh more heavily on buyers, house prices are 1.7 lower than the same time last year.
Asking prices in the capital saw the biggest regional month-by-month jump in October, up 2.5 per cent, though London remains the weakest performing area of the UK.
Tom Bill, head of residential research at property firm Knight Frank, said: “Prices will continue to be squeezed in the final months of the year as higher mortgage costs due to the Middle East conflict increasingly weigh on buyers.
“Uncertainty around the familiar list of potential property tax hikes in the Budget is aggravating the situation.”
Housebuilders under pressure
Separate research from estate agency Hamptons has shown that most first-time buyers are now paying more on their mortgage than they did on rent.
Brits who moved into their first home from rented accommodation last month were paying an average of £1,266 per month on mortgage repayments, compared to the £1,277 they had been spending on rent.
“The long-term benefits of home ownership – building equity, greater security and eventually owning a home outright – remain, but the immediate monthly saving that once rewarded tenants for making the leap has largely disappeared,” said Aneisha Beveridge, head of research at Hamptons.
Anthony Codling, an analyst at RBC Capital Markets, said Rightmove’s new data “reinforces a challenging operating environment” for the UK’s housebuilders, which have been battling with dampened demand and rising supply costs due to the Middle East conflict.
Shares in London’s listed housebuilders rocketed at the end of last month after Andy Burnham announced the revival of Help to Buy equity loan scheme for first-time buyers.
Analysts said the buoyant market response to the announcement showed that the sector was in need of a stimulus, though they warned builders will still struggle in the absence of supply-side support.
Top housebuilders Taylor Wimpey and Berkeley have hit out at London’s housebuilding market in recent weeks, warning planning objections are beginning to make building in the capital unviable.