Rising mortgage rates to hit ‘buying power’ by 28%, says Zoopla

Zoopla has warned rising interest rates could reduce the size of mortgages buyers can afford by as much as 28% next year.

The property portal, in its latest house price index, said an expected doubling in mortgage rates by the final quarter of 2022 compared to rates at the start of the year would significantly hit buying power.

The findings come as a further 321 mortgage products were withdrawn overnight, according to information provider Moneyfacts.co.uk, taking the total withdrawn since the chancellor’s mini budget to 1,621, or 41% of those previously available.

Zoopla said that if a buyer used a 75% loan-to-value mortgage to buy an average priced UK home, this would cost £825 each month in mortgage repayments at a rate of 2%. But keeping repayments the same and moving to a 5% rate means the buyer can only afford a mortgage that is 28% smaller.

It said: “This will impact housing demand into 2023 for the 7 in 10 buyers using a mortgage unless they: put down larger deposits; or allocate more income to mortgage costs; or adjust their budgets, buying smaller property or looking to cheaper areas. A fourth option is to sit on the sidelines until the outlook for borrowing costs becomes clearer.”

Zoopla’s index also shows a ‘clear upward trend’ in listings which have had their asking prices reduced by 5% or more. It shows 6% of listed homes in July to September had their price adjusted downwards, the highest figure since the third quarter of 2019.

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It said: “This is the highest level since before the pandemic, although re-pricing is a common seasonal trend as we enter the autumn market. Given the economic backdrop, we see this as a move to more of a buyer’s market after two years of a red-hot sellers’ market.”

Zoopla said the average UK house price grew 8.2% year on year in August and “there are no immediate signs of a major slowdown in price inflation”, although it said quarterly growth is slowing.

The index comes amid market turmoil following last week’s mini budget, which outlined significant tax cuts funded by high levels of borrowing. According to data from personal finance information provider moneyfacts.co.uk, one in three mortgage products had been withdrawn by lenders as of yesterday. The provider said this increased further overnight with a further 321 products removed from the shelves.

Housebuilders have seen significant falls in their share prices amid expectations of significant interest rate rises, with analysts Credit Suisse and Capital Economics both now predicting house price falls of between 10-15% in the next year.