Property website Zoopla has warned that property hunters buying power will fall by 28% as mortgage rates rise and said that Wales is one of the areas of the UK that is most vulnerable to house price falls.
The latest House Price Index report from the property portal Zoopla said that mortgage rates were on track to hit 5% by the end of the financial year and that this would dramatically reduce the amount buyers would be able to pay for a home.
Zoopla said Wales was particularly vulnerable to a resulting house price fall as the nation recorded a 27% jump in prices following the start of the pandemic, equivalent to 10 years of pre-pandemic growth squeezed into just two years. It said the greatest hit to buying power was likely to be in the high price and high growth markets. See advice from one mortgage advisor here.
Zoopla's research director Richard Donnell said: "Our analysis shows that if mortgage rates do rise from 2% to 5%, buying power will be reduced by as much as 28%, assuming buyers want to keep monthly repayments unchanged."
If this interest rate increase does come to fruition, it would put mortgages at their most expensive since the early 1990s, with buyers able to borrow 28% less on average, predicted to lead to a possible fall in house prices by a similar amount.
Zoopla provides a wider context, stating: "The macro backdrop for the UK housing market has evolved rapidly over the summer. Central banks have increased interest rates to bring down inflation. Rising energy prices are adding to the cost-of living squeeze and UK consumer confidence has hit an all-time low with buyer interest 'weaker than a year ago'."
Over the Covid-19 pandemic, property and financial companies and the Office for National Statistics (ONS) all reported, via their data analysis, that Wales experienced the highest year-on-year increase in average house prices across the UK via monthly house price bulletins.
The most recent figures from the ONS covering July 2021 to July 2022 indicate that the more affordable areas of Wales are becoming more dominant when considering increases in average house price figures, over the pandemic trend to rush to find more space or a location within the more rural counties. Now it's becoming far more about current and future affordability. Find out more about that here.
Richard Donnell says: "New sales are holding up with no sudden drop in demand in recent weeks - but buyer interest is weaker than a year ago. Looking ahead, higher mortgage rates will have the greatest impact on activity in higher value markets and areas which have registered the greatest surge in prices over the pandemic."
Despite this, Zoopla's breakdown of regional annual percentage increase in the average house price for the year to August 2022 still sees Wales at the top of the list, with the lag in figures to match the current financial challenges not yet appearing in the data.
The yearly figure to August 2022 see Wales record a 11% average house price increase against the backdrop of a UK-wide average increase of 8.2% over the previous 12 months.
James Skudder, managing director of Welsh estate agency Country Living Group, says: "With interest rates sitting at 2.25% and UK inflation sitting at 9.9%, the Welsh property market has seen a U-turn from the frenzied market conditions we previously had experienced during the Covid pandemic.
"Although buyer demand does remain steady across the counties, we have certainly experienced a softening in the general market.
"Buyers now have choice as we now see the supply and demand nature of the property market reversing. As a result, buyers are taking longer to make decisions and are very much filtering with their brain rather than buying with their hearts.
"Naturally in most cases property prices are driven by a buyer's ability to borrow money. As the opportunity to borrow diminishes and the cost to do so increases, this can only be passed down by a softening of the increasing house prices we once saw. Although we have secured buyers in the prime market (£800,000+) this is not setting the tone of the general market."
On a UK-wide level, Zoopla's summary of the year to date to provide context states that the strong start to the year has carried the momentum into the summer but as the autumn selling season begins, demand for housing continues to soften and is much lower than this time last year.
In addition, asking price reductions on a UK nationwide level are at the highest levels since before the pandemic, as sellers adjust to more price sensitive demand.
Richard Donnell says: "Stamp duty and land transaction tax changes are welcome and will boost some sectors of the market but, overall, they are unlikely to offset the impact of higher mortgage rates on housing activity.
"A rise in interest rates will impact housing demand into 2023 for the 7 in 10 buyers using a mortgage unless buyers put down larger deposits, or allocate more income to mortgage costs, or adjust their budgets, buying smaller property or looking to cheaper areas. A fourth option is to sit on the sidelines until the outlook for borrowing costs becomes clearer."
Advice to sellers and buyers from Country Living Group's James Skudder includes reflecting the current changes in the market place in the property price and the buying process timings.
He says: "Our advice to sellers at present is that any entry level price to market has to be set to find the stimulation zone of buyers. Realistic value levels are absolutely vital in order to secure the interest at the correct time.
"Patience is also a big factor as the average time to sell has now slowly increased. The acting agent also needs to make sure that they have an effective marketing programme that will keep engagement high and really sell the lifestyle of the home.
"Our advice to buyers at present is to think outside the box when looking for the dream home. Strength in position is a big factor for a seller in the consideration process of any offer.
"Risk attached to a buyer is a key element with the re-alignment of property prices going forward. The best price is not always the best buyer."
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