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31st October 2022

  • Increase in mortgage rates represents the largest interest rate shock for new buyers since the late 1980s 

  • Despite signs of slowing, mortgage rates will not return to the ultra-low levels of recent years - 4-5% is set to become the new norm with buyers needing to get used to these new rates

  • House price growth stands at 8.1% driven by the strength of demand and sales agreed over the last 6 months, and an ongoing shortage of supply

  • It’s unlikely but sustained 6% mortgage rates would lead to double digit price falls eroding ‘paper’ gains achieved over the pandemic but few negative equity cases.

  • More likely is a reduction of up to 5% over the next year, meaning the average UK property would lose 8 months of capital gains with London (13 months) set to see the biggest loss of value and Wales the least (6 months)


Biggest interest rate hit for new buyers since the 1980s

Political turmoil in recent weeks resulted in mortgage rates surging to highs of c. 6%, hitting buyer demand which has fallen by a third since the mini budget. The spike in mortgage rates represents the largest interest rate shock for new buyers since the late 1980s and despite signs that mortgage rates will fall back, they will not return to the ultra-low levels of recent years.  Mortgage rates of 4 to 5% are likely to be the new norm. 


Following the dramatic increase in mortgage rates in recent months there is light on the horizon for new buyers looking for a mortgage who hadn’t managed to secure a cheaper rate before August, with signs that the cost of money that underpins fixed rate mortgages (SWAP rates) is starting to fall back in line with other borrowing costs.  Higher mortgage rates don’t hit all buyers equally. Half of all sales are typically paid for by cash or using a mortgage that is small relative to the value of the property (<50%). These buyers will see less of a hit to buying power than first time buyers and those looking to trade up using larger loans.


Uncertainty and expensive mortgages squeezing out new buyers

The drop in new buyer interest over the last month has been spread across all UK markets as limited buyers with cheap mortgage offers remain, with the biggest drops in new buyer interest in the South East (-40%) and in the West Midlands (-38%). Falls in buyer interest are also evident in more affordable regions such as the North East (-20%) and Scotland (24%) but to a lesser extent.


This also coincides with an increase in asking price reductions - almost 7% of homes have seen the asking price reduced by at least 5% - an increase in comparison to recent months, but still below 2018 levels. A scarcity of supply in the market continues to support pricing.


As the market remains turbulent, fall-throughs in sales are increasing, mainly as a result of a lack of affordable finance impacting buyer affordability. However, the market is still on track for up to 1.3m sales in 2022, down from 1.5m in 2021.


What’s the outlook for the housing market?

House price growth stands at 8.1% YoY driven by the strength of demand and sales agreed during the last 6 months, and supported by an ongoing shortage of supply. Whilst there was a short-lived surge in the number of homes coming to the market, the number of homes for sale remains below average (-13% vs 5 year average).  


Richard Donnell, Executive Director at Zoopla says “New buyer demand has dropped quickly in the face of higher borrowing costs, it’s like the Christmas slowdown has come a month early. We don’t expect to see any impact on pricing levels between now and December and this will only start to materialise in early 2023.  It takes several months for pricing to adjust in the face of weaker demand.


“The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4% with a modest decline in house prices of up to 5%. The labour market remains strong and the supply of homes for sale is below average creating a scarcity of homes for sale that will support pricing.”


How would price falls affect your home?

Should house prices fall by 5%, the average UK property would lose 8 months of capital gains with London (13 months) set to see the biggest loss of value and Wales the least (6 months). Were prices to fall by 15%, this would see 20 months of capital growth knocked off the price for the average UK home with 80 months of growth removed in London, but only 15 months for properties in Wales.


Although unlikely, should mortgage rates stay above 6% for the majority of 2023, then UK house prices would fall to reflect the hit to the purchasing power of those using mortgages. Sustained 6% mortgage rates would lead to double digit price falls, eroding any ‘paper’ gains achieved over the pandemic however it would result in few negative equity cases due to more equity and strong house price growth in recent years.



Looking ahead to 2023, Richard Donnell, Executive Director at Zoopla says, ”The outlook for the year ahead hinges on the trajectory for mortgage rates which impacts the buying power of households who are already facing higher living costs. Mortgage rates were always heading for 4-5% and the impact of the mini budget has boosted them even higher. 


“We expect borrowing costs to fall in 2023 easing some of the hit to buying power, but we also expect a degree of price adjustment in the face of price sensitive demand. House prices have risen significantly over the pandemic and homeowners wanting to sell in 2023 will need to be realistic on price and may have to forgo some of the pandemic price gains to achieve a sale in 2023.” 


Caroline Pattinson, Managing Director at Pattinson Estate Agents says: “It has definitely been an interesting time in the property market in the last few months. Following the mini budget and interest rate rises we did see some buyers changing their mind about buying.  We aren’t however seeing every chain collapsing and the sales pipeline dropping to nothing. A lot of the people who have sales underway committed to moving months ago and if they had submitted a mortgage application would be buying at lower interest rates.  


“We still have new buyers registering and applying for mortgages, based on our figures I can see there is a slight drop in sales when we compare to October 2021, the interesting thing is that the level of sales is higher than in 2018.  The number of properties exchanging this October is higher than last year and our sales pipeline has 65% more properties under offer than we had when we went into the first covid lockdown.


“We are talking to sellers about repricing where their property is not attracting as much interest as we would like. Shifting from a sellers to a buyers market means we will need to work with sellers to help their house stand out - curb appeal does matter, making properties as attractive to buyers will be increasingly important and that is where feedback from viewers is key. 


“People move home/buy and sell properties for a variety of different reasons. In the upcoming weeks and months the market will be driven by those who ‘need’ to buy or sell, as those who would ‘like’ to buy or sell sit back and wait for the dust to settle.”



- Ends -

For further information, please contact PR Team on [email protected] or +44 (0)20 3873 8770.

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