The UK property market is facing headwinds as mortgage rates rise, leading property sellers to lower their asking prices for the first time this year, according to the property-search portal Rightmove. The measure of asking prices dropped by 0.2% this month, signaling that the recent surge in borrowing costs is impacting buyers’ affordability. While prices are still 0.5% higher than a year ago, the downward trend in prices suggests that home sellers are adjusting their expectations. The Bank of England’s rate hikes and higher mortgage pricing are beginning to bite, leading to lower sales and a slowdown in the market.
The rise in mortgage rates and tighter lending conditions have dampened buyer demand to some extent while defaults started rising. However, there is still resilience in the market, with buyer demand remaining 3% higher than in 2019. The shortage of properties for sale compared to historic norms has helped support prices, particularly for well-priced properties that meet buyer affordability.
While the market is experiencing challenges and uncertainties, certain segments, such as first-time buyers, trader-uppers, and downsizers with higher deposits and lower mortgage requirements, are still actively searching for properties. Their motivation stems from the limited supply of quality properties for sale and ongoing housing needs. However, some buyers may be pausing their plans until there is more certainty around mortgage rates and how higher costs will impact them.
In addition to the property market, the rental market is also feeling the impact of high mortgage rates. Hamptons reports that average rents on newly-let properties reached a record high in June, with rental demand being stoked by high mortgage rates that have priced out potential first-time buyers. With interest rates expected to remain higher for longer and fewer new landlords entering the market, these rental pressures are likely to persist in the medium term.
The current landscape of the UK property market calls for cautiousness and strategic decision-making. Sellers need to price their properties realistically to attract motivated buyers, while buyers must carefully assess their affordability in light of rising mortgage rates. The ongoing interplay between interest rates, buyer demand, and the availability of properties will continue to shape the market dynamics, requiring both sellers and buyers to adapt to the changing conditions.