Mortgage rate hikes will push home sales to 11-year low

The number of housing sales completing over 2023 is on track to be a fifth (21%) down on 2022 and the lowest number of sales since 2012, Zoopla research has revealed.

This seems largely down to rising mortgage rates, as cash sales are projected to only fall by 1%, compared to mortgaged sales plummeting by almost a third (28%).

New buy-to-let purchases are also being squeezed by higher mortgage rates, with BTL mortgaged purchases accounting for 8% of sales a year.

As Zoopla explains, the typical buy to let purchaser in southern England needs to inject 40-50% of the property value as equity to get the numbers to stack up which is not a strong proposition for a gross rental yield of less than 5%, below the base rate.

New sales of three and four bed homes are down by up to 40% in July compared to the same period over the last five years, while sales of smaller – and therefore more affordable – homes have fallen to a smaller degree.

Mortgage rates have been falling in recent weeks albeit slowly, as they remain over 5%.

Zoopla said mortgage rates need to fall below 5% to improve affordability and stimulate more home moves.

Affordability is improving relative to earnings as wages rise quickly, up 7% over the last year.

Housing affordability, on a house price to earnings basis, looks set to improve by 9-10% over 2023 as prices register modest falls and average earnings increase.

The UK house price to earnings ratio will be in line with the 20-year average at the end of 2023 at 6.3x.

Surprisingly, affordability has improved the most in London where the price to earnings ratio will move to single digits for the first time in 11 years as house price growth continues to lag earnings growth.