HOW ARE MORTGAGE INTEREST RATES IMPACTING HOUSE PRICES?
2nd August 2023
As you will, no doubt, have recently read, there have been a lot of headlines about interest rate and mortgage rate rises.
The Bank of England has now raised the Base Rate 13 times since December 2021. It’s now at 5.25%, which is the highest it’s been in 15 years. The recent rate increases have been made because inflation has stayed higher than expected.
Unfortunately, this has also been pushing up mortgage rates, meaning that some home-movers are pausing their plans while they assess what higher costs mean for their budgets.
The increasing affordability challenges of home-buyers has meant that some new home sellers have adjusted their asking price expectations. In northern areas, house prices have proved more resilient than most expected during the first half of the year, but there is definitely a regional divide.
Drilling down to the regional level, it’s clear that housing markets with average prices over £300,000 are feeling the impact of higher mortgage rates more than other areas. There is a clear split between trends in southern England and the rest of the country. Higher mortgage rates have a greater impact on buying power in southern England where house prices are highest. The barriers to first-time buyers are also greater, weakening demand from buyers who support the bottom end of housing chains.
House prices are falling by up to -0.6%, year-on-year, across all four regions in southern England, in contrast, house prices continue to register annual price growth of over 1% across the other seven regions of the UK, led by Scotland where house prices are 1.9% higher than a year ago.
Demand from home-buyers is still higher than 2019’s more normal market level, however, rate rises have impacted the number of home sales agreed in the past couple of months.
However, first-time buyers, trader-uppers and downsizers with higher deposits and lower mortgage requirements appear to be still keenly searching the market, not wanting to miss out on the right property that is not over-priced and that they can still afford.
Some home-movers are putting their plans on hold until there is more certainty that mortgage rates have stabilised. However, there is still a large volume of motivated home-buyers who can factor rate rises into their budgets and are continuing to enquire about homes for sale.
We can report that homes that are realistically priced are still attracting motivated buyers due to the shortage of property for sale compared to historic norms.
Homes that need a reduction in asking price are more than 10% less likely to find a buyer than those that were priced right from the start. With the chances of selling already lower due to current market conditions, initial over-pricing reduces those chances markedly further.
Sellers who price right the first time, rather than starting with too high an asking price only to reduce later, have a much better chance of attracting one of these motivated buyers at the outset.
The current view is that Bank of England rates will have to go higher to address inflation in the short term, but the financial markets still believe they will fall back in the long-term.
On a more positive note the typical Torridge home is now worth £304,200, above the UK average house price of £261,500 and looking back over the last five years, the average property value has grown by 28.3%.
