Zoopla: North/South divide widens as mortgage rates hit the south – but they may be peaking

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the Zoopla House Price Index, which shows North/South divide widens as mortgage rates hit the south – but they may be peaking.

Key points from publication:

• • Hikes in mortgage rates have depressed demand by almost a fifth (18%) in two months.
  • Average house prices are up just 0.6% in a year (it was 9.6% in June last year) – and are still expected to fall 5% during 2023.
  • In southern England, prices are down 2.2% in a year.
  • In affordable areas further north, near employment centres, prices are faring better. The biggest growth over the past year has been 4.3% in Halifax, 3.7% in Wolverhampton and 3% in Falkirk.
  • 5% of homes for sale have had asking price cuts of over 5% – which is 60% above the five-year average. Cuts are biggest in southern England.

Sarah Coles says:

“What goes up must come down, and when it comes to house prices, the higher they rise, and the faster they move, the more risk they face of dropping like a stone.

“In southern England, where property prices are highest, mortgage rate hikes have hit harder, and prices have fallen further.

“Mortgage rate rises have taken a real toll, cutting buyer demand by almost a fifth (18%) in two months.

“This isn’t as much of a drop as after the mini-Budget, but demand was lower to start with, so as a result, year-on-year demand is down 40%.

“This is depressing prices.

“The North/South divide is alive and well. In the South of England, where prices are higher and so mortgages are bigger, hikes in rates have a disproportionately large impact.

“It’s making it far harder for people to stretch to get onto the property ladder or into a bigger property, so demand is dropping, and sellers are being forced to cut asking prices further.

“Meanwhile in the North, areas like Halifax, Wolverhampton and Falkirk are enjoying far more robust growth.

“In some areas we may well see prices continue to rise throughout 2023, so the North/South divide may well widen through the rest of the year.

“There are exceptions to the rule.

“There are pockets of the North where prices are dropping, as the cost-of-living takes a toll.

“Sunderland, for example, has seen falls of 1.7%, Aberdeen 0.9% and Northern Ireland 0.8%.

“Likewise, in London, although prices are the highest in the country and are falling, they’re not dropping as fast as you might expect, partly because they haven’t seen such stellar price increases over the past year as elsewhere.”

Better news for mortgages:

“There’s some better news for borrowers on the horizon, because mortgage rates may well be reaching a peak. on Thursday,

“Moneyfacts put the average 2-year fixed rate at an eye-watering 6.83%, adding to the mortgage misery of would-be buyers and those set for a remortgage.

“However, ever since inflation figures came in lower than expected last week, we’ve seen a shift.

“The market is pricing in fewer rate rises, so fixed rate mortgages have been getting cheaper.

“On Wednesday, the average 2-year fix was priced at 6.86%. It will take a while for lenders to reprice, but we’ve already seen HSBC and TSB cut mortgage rates, and other big lenders are likely to follow suit.

“We’re not going to see any really big movements while there are concerns that higher rates will stick around for a while, but we may well see rates get back closer to 6%, making life slightly easier for buyers.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay