Wednesday, February 28, 2024
Finance

Mortgage activity set to drop over the rest of 2022

Zoopla

According to Zoopla’s House Price Index for July 2022, house price growth remains strong at 8.7% over the course of the year, with the Land Registry recording a 1% rise in June alone

New market analysis has found that mortgage activity is set to drop over the rest of 2022 as the market feels the brunt of interest rate hikes, with some estimating a fall of as much as 6%.

According to Zoopla’s House Price Index for July 2022, house price growth remains strong at 8.7% over the course of the year, with the Land Registry recording a 1% rise in June alone.

On this, Zoopla conceded that it ‘may feel surprising that sales market activity is not weakening faster, given increases in the cost of living, rising interests and a drop in UK consumer confidence’.

Whether this remains the case in light of Ofgem’s energy bill price cap rocketing to £3,549 in October remains to be seen.

High inflation and the rising cost of living are hitting those on lower incomes first and will take longer to impact higher income households, said Zoopla.

The market is still somewhat supported by pandemic factors, with the increase in working from home and a growth in retirement continuing to stimulate demand for homes. This is shown by the ‘new sales agreed’ measure, which is on a par with this time last year, say Zoopla.

However, the portal did say that the higher interest rates – now sitting at 1.75% – will indeed take their toll on mortgage activity in H2 2022: In January 2022, new mortgage rates were still ultra-cheap at less than 2%. This has now jumped to 3.5% and is set to reach 4% as we move into the autumn. This level of mortgage rates is still low by historic standards, but homebuyers have become used to very low mortgage rates. This means any reversal is likely to have some impact on demand, especially when combined with cost of living pressures.

This was corroborated by mortgage broker Henry Dannell, who said rising interest rates are likely to dampen the mortgage market in 2022, forecasting a 6% drop in Monetary Financial Institution activity and a 16.5% drop in specialist lending.

Zoopla said this will hit first-time buyers (FTB) the hardest: Moving from a 2% mortgage rate to 4% means the average FTB will need an extra £12,250 in income, compared to when rates were lower.

However, in most of England, buying will remain cheaper than renting for FTBs, with Zoopla saying that ‘the lack of a material over-valuation in UK home values means mortgage rates of up to 4% are not, on their own, sufficient to result in UK-wide price falls.’

They added: So far, there are few signs of weaker demand and our analysis shows FTBs made up an increased share of all sales in H1 2022 – up to 35% compared to 32% in 2021.

They did, however, concede that they ‘expect FTB behaviours and buying patterns to shift further in H2 in response to higher costs and the increasing possibility of FTBs being priced out of the market’.

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