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Surge in Mortgage Rates Dents Buyer Appetite by 18%: Southern England Grapples with Falling House Prices

Escalating mortgage rates over the past two months have resulted in an 18% decrease in demand for homes, as indicated by Zoopla’s most recent House Price Index. While this slump is not as precipitous as that seen after the mini-budget in 2022, the yearly demand has plummeted by 40%. Regardless, committed sellers and buyers remain active, with agreed sales only 17% lower than the same period last year.

Nationwide, the increase in UK house prices has dwindled to a mere 0.6% (as of June 2023), a significant slowdown compared to the robust 9.6% growth seen in June 2022. This deceleration has hit Southern England, where housing prices are generally highest, hardest. As a result of increased mortgage rates, house prices across the South East, South West, and London regions have declined by up to 0.6%. In contrast, other parts of the country, where housing prices are more affordable, continue to enjoy over 1% annual growth, reaching a peak of 1.9% in Scotland. This regional price gap is expected to widen further in the latter half of 2023, especially in higher-value markets.

Southern England’s commuter markets, such as Southend, Watford, and North West Hertfordshire, have seen notable price falls. Even some lower-value markets, including Sunderland, Aberdeen, and Northern Ireland, have experienced price drops, impacted by local economic factors in addition to increased mortgage rates and cost-of-living pressures. Conversely, affordable regions adjacent to significant employment centres, such as Halifax, Wolverhampton, and Falkirk, continue to register above-average price growth rates.

Head of Personal Finance at Hargreaves Lansdown, Sarah Coles, commented on the situation. “In Southern England, where property prices are the highest, increased mortgage rates have had a greater impact, leading to larger price declines. Mortgage rate hikes have drastically affected buyer demand, causing an 18% dip in just two months. This is depressing prices,” she said.

While house prices in the north continue to be more resilient, the cost of living is impacting prices in certain areas. Notable exceptions include Sunderland, where prices have fallen by 1.7%, and Aberdeen and Northern Ireland, with declines of 0.9% and 0.8% respectively. Conversely, prices in London, although high, aren’t dropping as rapidly as one might expect, partly due to slower price increases over the past year.

Despite the negative trends, there’s potential relief for borrowers on the horizon, as mortgage rates may have reached their peak. Since the release of lower-than-expected inflation figures last week, fixed-rate mortgages have been becoming cheaper. Already, HSBC and TSB have reduced their mortgage rates, with other large lenders expected to follow suit. While no significant changes are anticipated given the concerns that higher rates may persist, rates closer to 6% could soon offer some respite for buyers.