Mortgage rates are stifling house prices

Zoopla highlights the significant impact of higher mortgage rates on house price growth, presenting figures that underscore the strain on affordability in the UK housing market. The average home buyer utilizing a 70% loan-to-value mortgage faces annual mortgage repayments that are a staggering 61% higher today than they were three years ago. This translates to an increase from £7,100 to £11,400 in annual mortgage repayments.

Two-thirds of this increase is attributed to higher mortgage rates, while the remaining third is influenced by a 13% rise in house prices over the same period. At a regional level, the impact is most pronounced in southern England, where house prices are inherently higher. Zoopla reports a 50% to 70% increase in mortgage repayments for typical buyers between 2021 and 2024 in these regions.

For instance, the annual cost of mortgage repayments for an average-priced home in the South West, South East, and East of England is over £5,000 higher in 2024 compared to 2021. In London, the increase is even more significant, amounting to an extra £7,500 per year. Conversely, in other regions and countries of the UK, the rise is relatively lower, ranging between £2,350 and £3,900 annually.

Despite variations in underlying household incomes across regions, the comparatively lower mortgage increases in more affordable markets with lower house prices contribute to holding up market activity and prices in these areas. Zoopla emphasizes that the squeeze on housing affordability resulting from higher mortgage rates, lower income growth, and rising living costs is a key factor influencing house prices, particularly in southern England.

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