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  • Writer's pictureThe Cedar Crest Team

Interest rate shock

Light on the horizon for new buyers looking for a mortgage



The increase in mortgage rates represents the largest interest rate shock for new buyers since the late 1980s. Despite signs of slowing, mortgage rates will not return to the ultra-low levels of recent years, with 4% to 5% rates set to become the new norm, according to research from Zoopla. Political turmoil last September resulted in mortgage rates surging to highs of over 6%, hitting buyer demand which fell by a third following the Mini-Budget announcements. But even though there has been an increase in mortgage rates, there is still light on the horizon for new buyers looking for a mortgage.



Higher mortgage rates will not have a detrimental impact on all buyers equally. Some new sales may be funded with cash or using a mortgage that is small relative to the value of the property. These buyers will have been less impacted compared to first-time buyers and those looking to trade up using larger mortgage loan to values.

As a result of last September’s events, this led to a drop in new buyer interest which spread across all UK markets, the research highlighted. The biggest drops in new buyer interest were in the South East (–40%) and in the West Midlands (–38%). Falls in buyer interest were also evident in more affordable regions such as the North East (–20%) and Scotland (–24%) but to a lesser extent.



This coincided with an increase in asking price reductions: almost 7% of homes were subject to asking price reductions by at least 5%, but this is still below 2018 levels. A scarcity of supply in the market continues to support pricing. As the market remains turbulent, fall throughs in sales have been increasing, mainly as a result of a lack of affordable finance impacting buyer affordability.



The most likely outcome for 2023 is that there will be a fall in mortgage rates towards 4% with a modest decline in property prices of up to 5%. The labour market remains strong and the supply of homes for sale is below average, creating a scarcity of homes for sale that will support pricing.

Although unlikely, should mortgage rates stay above 6% for the majority of 2023, then UK house prices would fall to reflect the impact on the purchasing power of those using mortgages. Sustained 6% mortgage rates would lead to double digit price falls, eroding any ‘paper’ gains achieved over the pandemic. However, it would result in few negative equity cases due to more equity and strong house price growth in recent years.



The outlook for this year ahead hinges on the trajectory for mortgage rates, which impacts the buying power of households who are already facing higher living costs. Borrowing costs are expected to fall throughout 2023, but with a degree of price adjustment in the face of price sensitive demand. House prices increased significantly over the pandemic and homeowners wanting to sell this year will need to be realistic on price and may have to forgo some of the pandemic price gains to achieve a sale in 2023.



Get started by finding out how much you could borrow or seeing how much your monthly repayments might be. If you’re ready, we’ll help you apply for a Decision in Principle. To find out more speak to Cedar Crest Ltd – telephone UK T: +44 (0) 203 883 1017, HK T: +852 6645 4462 – email info@cedar-crest.

Your home may be repossessed if you do not keep up with payments.

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