Mortgage rate rises to slow down UK house price growth

house price The Riverwalk building in Millbank, London, a new-build residential block where flats start at £1.2million. A large number of luxury and ultra-luxury new-build apartments in London are failing to sell, as overseas investors invest less in UK property. Picture date: Wednesday November 14th, 2018. Photo credit should read: Matt Crossick/ EMPICS Entertainment.
London remains the UK’s most unaffordable housing market where house prices are 11.6x average earnings. Photo: Matt Crossick/ EMPICS Entertainment.

The pace of house price growth will slow to 5% by the end of the year as mortgage rates rise and home buyers become more cautious.

The average UK house price will reach nearly £260,000 by December, up from the current £256,600 price tag home buyers are facing to get on the property ladder, according to property website Zoopla.

With prices surging, demand for homes has slowed over 2022 but remains 25% above average over the last five years.

Zoopla expects to see 1.3 million sales completions in 2022, around 100,000 higher than it had forecast.

Read more: Mortgages: Buyers free to borrow more as Bank of England scraps affordability test

The desire to move home is still being fuelled by pandemic purchases with buyers continuing to seek homes that afford a work-life balance and the desire to move currently outweighs economic pressures faced by prospective buyers.

Richard Donnell, executive director of research at Zoopla, said: “The ongoing impact of the pandemic continues to support a desire to move among home buyers.

“This is a big reason why the market is not slowing as fast as some might expect and demand remains for sensibly-priced homes, especially in more affordable areas.

“The housing market is not immune from higher mortgage rates which we are starting to see increase quickly.

“Buyer interest is expected to slow over the coming months as people tighten their belts and spend with more caution which will see price growth weaken further.

“While we don’t expect current trends to lead to a marked drop in house prices next year, buyers will become more wary and it is important sellers are realistic when pricing their homes to sell.”

London remains the UK’s most unaffordable housing market, where house prices are 11.6x average earnings and prices are rising at the slowest rate of 4%.

Read more: How interest rate rises are affecting UK mortgages

Demand remains strong in more affordable markets and cities outside the South East, with Northampton, Teesside and Coventry experiencing a 60% surge in inquiries for properties compared to a five-year average.

However, Bradford takes the number one spot, with inquiries almost doubling (98%). Wolverhampton saw demand grow by 91% and Warrington experienced a 70% jump.

Zoopla’s research suggested that changing working habits could help to fuel some demand in the market, with people working from home being particularly likely to have expectations about moving house.

Read more: You need 40 years of income to buy a property in London

The research also indicated that the departure of some older people from the labour market during the coronavirus pandemic may trigger some house moves, with retirement often being a major factor in the decision to downsize or relocate.

Richard Davies, managing director of estate agent Chestertons, said: “Although we would normally expect the market to slow down towards the summer, we are seeing a continuous uplift in buyer registrations.”

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