House prices cool as rising mortgage rates keep buyers away

Asking prices for houses hitting the market were basically flat at £372,812 in June as the disorderly mortgage market creates uncertainty among movers.

Average new seller asking prices fell by £82 (-0.0%) this month to £372,812. Despite the amount not being enough to even move the needle in terms of percentage, this is the first monthly drop in new asking prices this year, and the first at this time of year since 2017.

Higher interest rates – that are set to rise even further – and “significant increases” in fixed mortgage interest rates over the last few weeks have added pressure onto already very stretched UK household budgets. These increases in rates and monthly mortgage payments may mean that some have to pause their plans of jumping on the housing ladder for now.

Read more: More pain to hit homeowners as Bank of England set to rise interest rates

In the last four weeks, the average mortgage rate for a 5-year fixed 85% loan-to-value (LTV) mortgage has jumped from 4.56% to 5.20%. This means that a new buyer purchasing a property at the current average asking price would now expect to pay an extra £117 per month if repaying the mortgage over a 25-year term.

By comparison, the average rate for the same mortgage product changed from 4.50% to 4.52% over the previous four weeks.

Read more: UK households falling behind on mortgage payments as costs surge

“Average new seller asking prices, the first and leading indicator of new trends in the market, have dropped slightly this month, signalling that the belated spring price bounce has quickly turned into an earlier than usual summer slowdown,” Rightmove’s director of property science, Tim Bannister, said.

“We expect asking prices to edge down during the second half of the year which is the normal seasonal pattern, and while we sometimes re-forecast our expectations for annual price changes at this time, current trends suggest that our original forecast of a 2% annual drop in asking prices at the end of 2023 is still valid,” he added.

Read more: Mortgage costs driving buyers to 35-year loans to keep payments affordable

The prospect of further increases from the Bank of England has prompted to pull deals and hike rates at short notice.

HSBC UK briefly took some mortgage products available through brokers off the market last week as it faced high demand from homeowners. It is set to raise mortgage rates for the second time this week.

Santander also temporarily paused some mortgage applications earlier in the week in light of “changing market conditions”.

Read more: As mortgage rates rise yet again here’s what the banks are offering

"It is likely to feel very frenetic for those taking out a mortgage right now, as they try to quickly lock in the best rate that they can find," said Bannister.

"Although the impact of higher mortgage rates on activity levels has been limited so far, with prospective buyers who can still afford to move appearing determined to go ahead, it remains to be seen how movers will respond to the expected further rate rises."

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