Measurements by Zoopla have revealed that demand for new homes from first-time buyers has dropped by a third since the former chancellor announced his mini-budget.
The number of mortgage approvals being made to home-buyers also fell significantly in September, as borrowers’ costs increased. The Bank of England said mortgage approvals for house purchases decreased to 66,800 in September, from 74,400 in August.
New buyers in particular are facing the biggest squeeze since the 1980s, with mortgage rates hitting as high as 6%. Zoopla warned that “mortgage rates of 4% to 5% are likely to be the new norm” even after rates have dropped back in recent days.
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Mortgage rates soared after the mini-budget, with many lenders pulling products from the market as they needed time to reprice them. It came as investors were concerned that the Bank of England would be forced to keep upping its interest base rate if the Government pushed ahead with its policies.
Since then, the Government has been replaced and most of the policies abandoned, but rates are still set to rise according to market watchers – just not by as much as markets thought some weeks ago. Rises in the Bank of England base rate have also pushed up mortgage rates.
Richard Donnell, Zoopla executive director, said: “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.”
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The panic in the market in the first three weeks of September might have been driven by rising interest rate expectations – with the Bank of England increasing the base rate by 50 basis points on September 22 to 2.25% – but the situation escalated dramatically when former chancellor Kwasi Kwarteng unveiled his radical fiscal plan of unfunded tax cuts a day later.
“The mini-budget spooked the financial markets.”
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