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Eighteen months on from the mini-budget turmoil, UK households are still paying sharply more on a mortgage. New research from Zoopla shows higher mortgage rates are adding to the affordability pressures, and dragging on house price rises.
Zoopla calculates the average homebuyer taking out a 70% loan to value mortgage now faces annual mortgage repayments 61% higher today than three years ago (in March 2021) before rates started to rise. That’s because mortgage rates are about 4.5% today compared with sub 2% in March 2021, meaning average annual repayments have risen from £7,100 to £11,400.
However, only two-thirds of this rise is driven by higher mortgage rates – a third is down to the fact that house prices are 13% higher, Zoopla adds.
Londoners (where prices are highest), face the largest rise, of £7,500 a year. Buyers in the south-west, south-east and east of England face paying at least £5,000 a year more. Across other regions and countries of the UK, the increase is lower, at between £2,350 and £3,900 a year.
Mortgage rates had been rising in 2022 as the Bank of England lifted interest rates, and the City anticipated further tightening. But costs jumped after the unfunded tax cuts in the mini-budget of September 2022 shook investors, prompting a selloff in government bonds used to price fixed mortgages.
Zoopla’s data also shows house sale volumes are up 12% year on year, in the four weeks to 21 April, putting the market on track for 1.1m sales in 2024, up 10% on last year. But prices dipped by 0.2% month-on-month, while 64% of all homes are in local markets where prices are lower than a year ago.
Factors including higher mortgage rates and stamp duty are behind ongoing price falls across the south of England, Zoopla says.
Richard Donnell, executive director at Zoopla, says the market is adjusting to higher borrowing costs; he doesn’t believe prices will start to rise as buyers face much higher mortgage repayments than in the recent past, so sellers should remain realistic.
Zoopla’s calculations come at a time when several mortgage lenders are raising rates, blaming “market uncertainty”. The City expects just two interest rate cuts this year, less than they expected at the start of 2024, with the first cut fully priced in for September.
Tom Bill, head of UK residential research at estate agents Knight Frank, says: “Since Christmas, the prospect of the first rate cut since March 2020 has become more remote with each release of economic data, which means mortgage rates have edged back up and house prices are once again under downwards pressure.”
Also coming up today
Ocado faces a showdown with shareholders at its annual meeting today, over a new pay scheme that could hand boss Tim Steiner a bonus share award of up to £15m.
In Whitehall, senior officials are worried that Thames Water’s financial collapse could trigger a rise in government borrowing costs not seen since the chaos of the mini-budget. Officials in the Treasury and the UK’s Debt Management Office fear that, unless the UK’s biggest water company is renationalised as soon as possible, “prolonged uncertainty” about its fate could “damage confidence in UK plc at a sensitive time”…
And in the markets, the FTSE 100 is set to open higher, after its best week since last September.
The agenda
• 7am BST: Sweden’s GDP report for Q1 2024
• 8am BST: Spanish inflation report for April
• 10am BST: Eurozone consumer confidence for April
• 11am BST: Ireland’s GDP report for Q1 2024
• 3.30pm BST: The Dallas Fed manufacturing index
We’ll be tracking all the main events throughout the day ...
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