6% MORTGAGE RATES HIT HOUSING MARKET
13th October 2022
New buyer demand drops by a fifth as those with cheap finance try to secure a home - pricing impact will take time to feed through
What has happened in the 2 weeks since the mini budget to 9 Oct 2022?
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Home buyer demand drops by 21% over last 2 weeks
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Drop in demand greatest in West Midlands (-28%) and South East (-24%), lowest in Scotland (-11%)
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Number of new sales agreed drop by 15% in last week after an increase in new sales in the first week after mini budget as buyers rush to agree sales and use cheap finance
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The Bank of England reported an unseasonal 17% surge in new mortgage approvals over August as buyers looked to move ahead of rate rises
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There has been a surge in new supply of homes for sale jumping 20% in the week after the mini budget - as owners with cheap mortgages look to try and sell their homes - these households will need to be very realistic on the proposed asking price
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Asking price reductions spike higher as sellers adjust pricing - 4% of homes have asking prices reduced by more than 5% (over £18,500 on average)
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Level of price reductions remains below 2018 levels as full price impact of weaker demand will take time to feed through
Zoopla’s view on the immediate outlook
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Q4 facing a hiatus of new buyers as those who have not secured cheap finance step back from market
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Those with cheap loans arranged before rates moved higher will remain in the market looking to secure a home but uncertainty over the outlook for prices will be a concern and some sellers may need to accept less to achieve a sale increasing the risk of fall throughs.
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It’s been a strong first half to the year up until the late summer with a large pipeline of sales in the process of moving to completion - estate agents and brokers will be focused on getting the existing pipeline of business through the system and minimising fall throughs - Zoopla estimate the pipeline of sales is currently 293,000.
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The impact of weaker demand and fewer sales will take time to feed through into pricing - the full impact may not become apparent until Q1 2023 as Q4 is a quieter period of new business and the market typically slows quickly from mid-November.
Richard Donnell, Executive Director at Zoopla comments, “Uncertainty amongst home buyers has dented housing market activity. After an initial scramble from those with cheap loans to agree sales, the last week has seen buyer interest drop by a fifth. The final few weeks of the year will be about closing out existing deals with agents, mortgage brokers, buyers and sellers facing increased down-valuations and general concerns about prices falling in 2023. Those with cheaper mortgages will continue to seek out homes to buy providing some support to market activity. While we have seen a lot of focus on mortgage rates, it is important to note that a quarter of buyers don't use any mortgage and many more have small sized loans so the higher cost of borrowing will mainly hit those seeking larger sized loans.
“We have seen a spike in asking prices being cut but at levels that remain below what we saw in 2018. The impact of weaker demand on pricing will take time to feed through and won't become clear until the new year as many would-be sellers, especially those without cheap finance, will step back from the market and review what the outlook is like as we enter 2023.”
Notes to editors:
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Unprecedented increase in mortgage rates which will deliver a 25-30% hit to buying power for new buyers who haven’t secured a cheap loan |
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Demand for homes has been weakening after 2 strong years post pandemic - the cost of living and start of interest rate rises started to impact demand over summer with noticeable dip last week |
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In the first week after the mini budget to the 2nd of October there was a rush to agree sales from those with cheap mortgages and a commensurate supply increase as these buyers looked to sell |
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As the furore over pulled mortgages and news that new mortgage rates would be 6% or higher demand and sales fell back more sharply in the last week and new supply slowed as fewer new sellers came to the market |
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Comparing the last 2 weeks to October 2021 shows a very different position with demand and sales much lower and supply rising and the overall number of homes for sale 25% higher |
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Demand is down across all areas in the 2 weeks since the mini budget led by the West Midlands and South East and holding up better in Scotland |
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Asking price reductions of over 5% have spiked higher but have not reached record highs. It will take time for price reductions to feed through the given scale of uncertainty over the housing outlook - sellers may decide to sit out the market and wait rather than cut prices |
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