According to the latest house price index from real estate firm Zoopla, the housing market in the UK is facing significant pressure due to surging borrowing costs. It is projected that home sales will reach their lowest level in over a decade as a result. The number of house purchases is expected to drop by 21% year-on-year, with only around 1 million sales predicted for this year compared to 1.26 million in the previous year.
One of the main factors contributing to this decline in demand is the increase in mortgage rates. Over the past four weeks, the demand for residential housing has decreased by 34% compared to the average for the last five years. This can be attributed to the soaring mortgage rates and the overall cost-of-living pressures that potential buyers are facing.
Richard Donnell, the executive director at Zoopla, highlighted that higher borrowing costs have had the most significant impact on the number of sales, especially among buyers who rely on mortgages. On the other hand, cash buyers have been less affected by these increased costs and are expected to account for more than one in three sales by 2023.
The average rates for fixed mortgage contracts have also reached their highest levels in years. As of Tuesday, a typical two-year fixed mortgage stands at 6.73%, while the average five-year fixed contract is 6.21%, according to Moneyfacts. This steep increase in mortgage rates has led to a predicted 28% drop in house sales funded by mortgages for this year. However, cash sales are expected to remain relatively resilient, with only a 1% decline anticipated in 2023.
Zoopla’s report indicates that for there to be an increased appetite for moving homes in the second half of the year, interest rates need to fall below 5%. However, the Bank of England has recently hiked interest rates for the 14th consecutive time, bringing the benchmark rate that influences most mortgage lending rates to a 15-year high of 5.25%. This further adds to the challenges faced by potential homebuyers.
The impact of these rising costs has already been reflected in mortgage approvals in the UK. According to the latest report from the regulator, mortgage approvals dipped for the first time in three months in July, with only 49,444 authorized home loans.
In light of these developments, the housing market in the UK is facing a significant slowdown, with buyers being discouraged by soaring mortgage rates and cost-of-living pressures. It remains to be seen how the market will react to these challenges and if any measures will be taken to alleviate the pressure on potential homebuyers.
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