Home buyers have been returning to the market in growing numbers over the last four weeks following a slowdown in activity over the summer, according to the latest Zoopla data. This is despite a 9% reduction in what households can borrow compared to the start of the year.
Mortgage rates peaked at close to 5% in April and this has led to more home buyers waiting on the sidelines over the summer months. Sales agreed are still down by 6% versus last year but the gap to last year is starting to close.
Average five-year fixed mortgage rates have risen from below 4% in January to around 4.8% today. For a buyer who could previously afford a £200,000 mortgage while keeping their monthly repayment unchanged, that rate rise means they can now only borrow around £182,000 for the same monthly payment - a 9% reduction in their buying power.
The average home buyer would need to add an additional £18,200 to their deposit on a home purchase to keep the monthly mortgage repayments unchanged compared to the start of the year. This varies between regions, reflecting the variation in house prices - buyers in London would need to add almost double the national average to their deposit (£35,500) while lower house prices mean those in the North East would only need an additional £10,200.
Despite reduced buying power, mortgage rates have stabilised and there has been a clear and sustained increase in the number of people searching for homes on Zoopla which is up 7% year-on-year - the highest increase since mortgage rates jumped in the Spring.
Searches for homes are higher across every region and country for the first time in a year. The pick up in searching activity is strongest in the South East (+8.9%) and East of England (+8.5%), while the North West (+0.7%) has seen the lowest increase.
House price growth has fallen and now sits at 0.9% in the year to July - down from 1.3% last month - as fewer sales and affordability pressures limit price growth.
Prices are flat to falling across most Southern regions in England, where declines range from -0.3% in the South East to -1% in London, where buyers are most exposed to higher borrowing costs. On the other hand, prices continue to rise across most of the North and Midlands (1.7% in Yorkshire - 3.1% in the North West, while Northern Ireland sees the highest year-on-year increase at 5.4%.
Late August and early September tend to see an increase in asking price reductions as sellers adjust pricing to attract buyers over the autumn.
Buyers also have plenty of homes to choose from. The number of homes being newly listed for sale is close to last year and shows that serious sellers are starting to return to the market. In terms of the overall stock of homes for sale this is 5% higher than a year ago - this extra choice will ensure house price inflation remains held in check as buyers can make competitive offers.
Richard Donnell, executive director at Zoopla, said: “Many buyers have taken a ‘wait and see’ approach over the summer months in response to higher borrowing costs and political uncertainty. The low point for activity was mid July around the time of the World Cup final. Since then we have seen a steady increase in the number of people searching for a home, assessing their options ahead of the post holiday rebound in sales market activity. This is a nationwide trend and the first time searches for homes are up across Britain this year.
"Average mortgage rates have stabilised but remain closer to 5% than 4% meaning affordability remains an important factor for many home buyers choosing their next home. Buyers have plenty of choice this autumn and will be able to make competitive bids for homes. Motivated sellers need to price carefully to attract interest and bids and seek the advice of local agents for the likely levels of demand and interest in their home as market conditions vary widely across the country.”
