Interest rate hikes mean first-time buyers need to make an extra £12,000

The average first-time buyer will need £12,250 more in income to buy a house than a year ago and £35,000 more in London as mortgage rates are set to rise.

Mortgage rates are expected to hit 4% as inflation and interest rates continue to climb, plunging UK households into a cost of living crisis.

Inflation is skyrocketing

Those in the South East of England will need at least an extra £15,750 in wages where house prices are higher, according to Zoopla’s House Price Index. However, in lower value regional markets such as the North East, the increase will be less than £5,000.

“So far, the housing market has held up well against the rising cost of living. The new energy price cap will add to the pressure faced by households, especially those on low incomes,” Richard Donnell, director of research at Zoopla, said.

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“We see the recent rise in mortgage rates having a greater impact on housing market activity and prices going forward. Low-income first-time buyers, those looking to swap using a larger mortgage and buyers in the South East of England will all feel the biggest impact on affordability,” he added.

Until recently, repayments of a mortgage were lower than those of a rental in all regions (mortgage rate of 2%) outside the capital. In London and parts of southern England, raising mortgage rates to 4% would push income to buy to be at or above the average rent. This change is likely to affect demand from those looking to access the property ladder primarily in the south of England.

While those buying homes with a mortgage may have higher incomes, rising mortgage rates for new buyers will compound cost-of-living increases and impact home sales in the fall of 2023. warned Zoopla.

“We expect an increasing number of households to continue to re-evaluate their homes due to ongoing pandemic factors and with added impetus from the rising cost of living. This will support overall sales numbers, but the rate of price inflation will continue to slow,” Donnell said.

As more people are pushed out of the market – especially in areas with the highest house prices – there is less demand from first-time buyers, which will hamper house price growth. accommodations.

Zoopla said some overpriced first-time buyers will look to buy smaller, lower-value homes as rising interest rates impact affordability. They may also consider moving further afield, as post-pandemic circumstances allow many to continue working in a hybrid fashion.

Yet house prices continue to rise, with the average home rising by 8.3% or £19,800 over the past 12 months.

Read more: First-time buyers struggle to buy coastal homes as house prices outpace wages

The South West and Wales are jointly the best performing regions, with annual property price growth of 10.6%.

The highest level of buyer interest in the UK is in the West Midlands (+35%) and the North East (+29%) with the weakest London market at 6%.

First-time buyers are now the largest buyer group, accounting for up to 35% of year-to-date sales and driving the market.

“The economic climate portends difficult times ahead. With interest rates rising and this upward trajectory continuing, coupled with significant increases in the cost of living and ongoing supply chain issues, there is reason to be cautious,” said Jayne Twiddle, National Operations Manager at Hunters.

Watch: Will UK house prices ever drop?


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