Yahoo Finance Buyers securing 5% to 10% discounts on house prices amid higher mortgage costs
Higher mortgage rates will deliver a 10-20% hit to buying power compared to when mortgage rates were at 4%
Sellers are being forced to sell at a discount to secure a deal as higher mortgage costs leave only a few able to buy a house in the current market.
Four in 10 (42%) sellers are accepting offers over 5% below the asking price — the highest number in five years, according to Zoopla’s House Price Index.
Meanwhile, 15% are accepting offers 10% lower than asking, with the average discount standing at 3.8%.
“We could be piling properties high and selling them cheap in the second half of the year, as mortgage misery throws houses into the bargain bucket. Two in five sellers have had to accept an offer that’s at least 5% below the asking price to secure a sale, while an alarming 15% have had to accept a 10% discount — or more. And if rates stay higher for longer, this could just be the start of it,” Sarah Coles, Yahoo Finance UK columnist and head of personal finance at Hargreaves Lansdown, said.
Read more: Mortgage rates: What the banks are offering following interest hikes
However, surging mortgage rates have also left fewer buyers in the market. Zoopla’s data shows 14% fewer buyers in the market over the last four weeks compared to a year ago.
Mortgage rates tipping above 5% have delivered a further 10-20% hit to the buying power of those who are purchasing with a mortgage, which make up 70% of sales, according to Zoopla.
Mortgage rates moving from 4% to 5% results in an 11% reduction in buying power. However, this increases to 20% with mortgage rates at 6%, up from 4%.
Richard Donnell, executive director at Zoopla, said: “The resilience of the housing market and homebuyers is set to be tested once again as mortgage rates increase over 5%. Mortgage rates falling to 4% earlier this year supported a rebound in sales and led to house prices registering small month-on-month gains.”
House prices are up 1.2% in a year, but annual house prices are set to turn negative in the second half of the year — with a 5% fall by the end of 2023.
The data from Zoopla shows some markets are still registering annual price increases of over 4% including Powys in Wales (4.1%), followed by Calderdale in Yorkshire (4%) and Dumfries & Galloway in Scotland (4%). The weakest growth rates are being recorded in the higher-value housing markets.
Zoopla still anticipates price falls of up to 5% this year but much of it will depend on mortgage rates and inflation.
Read more: Interest rates: When will UK’s mortgage misery end?
Donnell added: “Modest price falls will resume in the second half of 2023 as the supply of homes increases giving buyers more choice and room for negotiation on price. We still expect house prices to be 5% lower over 2023 and there is a very substantial equity buffer to absorb price falls which are likely to be concentrated across southern England.”
Watch: How much money do I need to buy a house?
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