Mortgage chaos leads to a stuttering housing market l Vesta blog

Mortgage chaos leads to a stuttering housing market

June 26, 2023

Amid mortgage rate chaos the housing market is experiencing fluctuations that may impact house prices and buyer behaviour.

Rightmove's latest data shows a slight dip in asking prices for properties in June, marking the first decline recorded this year. The drop in prices could be a sign of an early start to the summer slowdown in the housing market.

The significant increases in mortgage rates have strained affordability and created uncertainty among buyers. The Bank of England (BoE) is preparing to increase interest rates yet again in response to higher consumer price inflation and wage growth, which continues to make the mortgage market volatile, with lenders withdrawing products and repricing their offerings.

Existing homeowners, particularly those with fixed-rate deals, have been shielded from the impact of rising rates. However, as these fixed-rate deals expire, millions of households in the UK will face higher repayments in the coming months and potentially years. It is important to note that a majority of households in the UK do not have a mortgage, limiting the overall economic impact of higher rates. However, younger homeowners will feel the effects more acutely.

The uncertain interest rate environment has prompted some buyers to hesitate, especially first-time buyers, possibly waiting for a potential price crash or rate to drop and for more affordable mortgages to come back into the market. Net mortgage approvals have already declined, indicating the toll higher rates are taking on new buyers.

Despite the impact on affordability with higher rates, prospective buyers who can still afford higher mortgage costs remain determined to move. Buyer enquiries to estate agents have increased compared to pre-Covid levels, while the number of sales agreed has experienced a slight decline.

While interest rates play a significant role in mortgage repayment affordability, loan-to-income ratios also matter. Despite lower interest rates compared to previous decades, high loan-to-income ratios mean that mortgage repayments are already a significant portion of the income. As a result, some economists are already predicting a decline in house prices this year, as mortgage affordability weighs on demand. Falling house prices could affect consumer confidence and spending choices, impacting both mortgaged and non-mortgaged homeowners. In their latest survey,  Rightmove predicts a 2%% annual drop in asking prices by the end of 2023.

Investment property continues to attract strong demand from buyers and with the higher rates many existing landlords are looking to exit the market. There are deals to be done, however, most sales, where priced correctly at the outset, are holding onto their values through the sales process. The rental market remains strong and yields will continue to grow as housing stock continues to be in short supply and not matching the strong demand from renters. 

It has never been more important to sell with a tenant in place. At Vesta we are committed to providing our customers with robust and efficient marketplace for selling and buying good investment properties.

We believe that the UK property market offers many opportunities for investment and growth and we are here to help you navigate these opportunities and make informed decisions on the properties you want to sell or buy.

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