Homeowners at ‘tipping point’ as 5% interest rate forces them to sell with 10% discount | Personal Finance | Finance


Property transactions have plummeted 27 percent year on year (Image: GETTY)

The pressures of rising mortgage rates and the cost of living are resulting in sellers reducing their house prices in an attempt to lure buyers to close.

Homeowners looking to move are being forced to cut asking prices to sell their homes after mortgage rates have soared in the last year and property transactions have plummeted 27 percent year on year.

‌Around 42 percent of sellers have settled for discounts over five percent on the asking price, with 15 percent of people accepting markdowns of more than 10 percent off the initial asking price.

These figures come from Zoopla’s most recent House Price Index showing that the shift in the market is being induced by rising mortgage rates.

Last week, the Bank of England increased the base right to five percent. This is the 13 consecutive base rate rise the bank has approved, pushing mortgage rates up further and further.


Around 42% of sellers have settled for discounts over five percent on the asking price (Image: GETTY)

This puts pressure on those who are coming off a fixed-term deal and those on a variable rate, as their monthly mortgage repayments are set to soar as rates are much higher than they were years ago.

Zoopla stated that around one in six sellers are now having to shave more than 10 percent off the initial asking price to get a sale over the line as mortgage payments become unaffordable.

‌The report explained Zoopla’s view five percent mortgage rates “represent a tipping point”, beyond which house prices will post annual price falls with lower sales volumes.

Higher mortgage rates will hit buying power and squeeze more buyers out of the market, bringing a return to modest quarterly price falls.

Reflecting on the report, Richard Donnell, Executive Director at Zoopla, said: “The housing market and homebuyers’ resilience will be put to the test once again as mortgage rates climb above five percent.

interest rates

Interest rates are on the rise causing mortgage rates to rise (Image: GETTY)

“Earlier this year, a drop in mortgage rates to four percent prompted a sales rebound and minor monthly gains in house prices.

“However, modest price falls will resume in the second half of 2023 as the supply of homes increases, affording buyers more choice and negotiation leverage on price. We still foresee house prices being five percent lower over 2023.”

‌The average rate for a two-year mortgage is standing at 6.30 percent according to Moneyfacts’ data.

Experts at Moneyfacts have explained it is likely that the average five-year fixed rate mortgage will also breach the six percent threshold – it currently sits at 5.91 percent today, up from 5.79 percent from last week.

Zoopla said its own data indicates there have been fewer potential buyers in recent weeks than there were a year earlier.

The report continued: “It’s the most expensive markets, and those where prices have risen the most in recent years, where future price falls are likely to be concentrated.”

The report said the East of England, south-west England, the East Midlands and southeast of England “are areas where house prices appear that they need to adjust the most”.

Karen Noye, mortgage expert at Quilter said: “The provisional seasonally adjusted figures for UK residential transactions in May 2023 indicate a significant decline of 27 percent compared to the same period in the preceding year, and a modest decrease of three percent relative to April 2023.

“There was hope that the fiscal landscape was beginning to stabilise but following stickier than hoped for inflation a resurgence to the robust market we have come to expect is, disappointingly, is still not in sight.

“Whilst the sting of inflation should hopefully soon start to recede, mounting mortgage rates persist in curtailing transactions, as climbing the property ladder or transitioning homes becomes progressively more challenging. The Bank of England’s decision to lift its base rate to 5% in June, we can only compound problems. Lenders are increasing their mortgage rates, which are expected to soar even more should the Bank tighten monetary policy again.

“Average mortgage rates have experienced substantial volatility and now surpass six percent and this could inflict further harm on demand, driving transactions even lower.

“A gradual deflation in house prices over recent months mirrors the diminishing demand. We foresee a steady decrease over the following months as sellers vie for buyers. Given the property market’s inherent unpredictability, it is prudent to consult a professional mortgage adviser to ensure a decision that aligns with your personal financial situation.”

Chancellor Jeremy Hunt announced three measures to offer comfort to those anxious about high interest rates, and unsure if they will be able to keep up with payments.

However, if someone is currently looking for a mortgage, it’s important to do independent research to ensure people are getting the best deal for them.

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