Introduction:

The property market is experiencing a significant slowdown as rising mortgage rates take their toll. According to Zoopla’s latest house price index, almost half of sellers have been forced to reduce their asking prices in order to secure a sale. This trend is driven by the necessity for sellers to be realistic and adapt to the changing market conditions. With mortgage rates on the rise, buyers’ purchasing power is being hampered, resulting in a challenging environment for both sellers and buyers alike.

Sellers’ Adjustments and Market Impact:

Zoopla’s report revealed that 42% of house sellers lowered their asking prices by 5% in June, marking the highest proportion recorded since 2018. Additionally, 15% of sellers had to slash over 10% off the initial asking price to close a deal successfully. These figures indicate the increasing pressure on sellers to be flexible and accommodating if they wish to secure a sale. The property market had shown promising signs in May, with agreed property sale prices reaching their peak for the year. However, the subsequent rise in mortgage rates has disrupted this positive momentum.

The Impact of Rising Interest Rates:

Zoopla highlights that mortgage rates have surged by over 1% since the Spring, currently averaging between 5% and 6%, compared to 4.5% earlier this year. The Bank of England recently raised its base rate by 0.5%, reaching its highest level in 15 years at 5%. Lenders anticipate further increases to the base rate, which will undoubtedly exacerbate the affordability challenge. Zoopla’s report suggests that mortgage rates surpassing 5% represent a tipping point, leading to annual price declines and reduced sales volumes. The market recovery observed in the first half of the year is unlikely to be sustained in the second half due to higher mortgage rates.

Regional Variations and Price Adjustments:

While the property market faces headwinds nationwide, Zoopla’s data indicates regional variations in buyer activity. Scotland, the north east of England, and London continue to outperform the general average in terms of new sales being agreed. However, the report warns that the most expensive markets and those that have experienced significant price increases in recent years are likely to see concentrated price declines. The East of England, south west England, the East Midlands, and south east England are identified as areas where house prices need to make the most adjustments.

Government Intervention and Support Measures:

Acknowledging the challenges faced by mortgage holders grappling with higher repayments, Chancellor Jeremy Hunt convened a meeting with lenders after the Bank of England’s recent rate hike. As part of a series of support measures, lenders have committed to offering greater flexibility with mortgage payments. Borrowers will have the option to switch to an interest-only mortgage for six months or extend their mortgage term to reduce monthly payments, with the ability to revert to the original terms within the first six months without undergoing a new affordability check or impacting their credit score. Furthermore, lenders have agreed to a minimum 12-month period before initiating home repossessions.

Conclusion:

As mortgage rates continue to rise, the property market is experiencing a slowdown, compelling sellers to adjust their asking prices in order to achieve a sale. The impact of higher mortgage rates on buyers’ purchasing power is a significant factor contributing to the challenging market conditions. While regional variations exist, overall market activity is expected to decline in the coming months, with the potential for modest quarterly price falls. The government’s intervention and lenders’ support measures aim to alleviate the burden on mortgage holders and provide some relief in this challenging environment. However, the future trajectory of the property market remains uncertain as it navigates the complexities of rising mortgage rates and evolving buyer dynamics.