Higher mortgage rates set to price out first-time buyers

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on today’s publication of Zoopla’s House Price Index (26 August), showing higher mortgage rates set to price out first-time buyers.

Key points from the publication:

• • UK house prices are up 8.3% – so the average house costs £19,800 more than this time last year.
  • But higher mortgage rates will take their toll on first-time buyers, especially in housing hotspots.

Sarah Coles says:

“The property market may not be as safe as houses, because while annual price rises are still impressive, there are signs of weakness creeping in. Demand is getting shakier, and the first-time buyers who have been propping the market up are feeling the strain.

“Demand is still above the five-year average, but it has started to drop back, and is now less than a third of what it was in the spring. It takes around three months for agreed sales to translate into completions, so house price figures being announced at the moment reflect demand back then. It means we can expect significant changes in the months to come.

“Part of the problem is that a combination of soaring house prices and hikes in interest rates are pricing first-time buyers out of the market. Those in housing hotspots are feeling particular pressure. Meanwhile, although rents have been rising, the pace of mortgage hikes means that in more expensive areas, the cost of repaying the mortgage could increasingly overtake the cost of renting. This is likely to dampen demand from first-time buyers even further.

“First-time buyers are the engines of the housing market, particularly at the moment when they make up just over a third of all sales. When they get cold feet, it seizes up the rest of the market, so those who want to move up their ladder find it impossible to shift their old property, and are stuck in limbo.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay