Buyers reduce budgets in face of rising interest rates

Buyers reduce budgets in face of rising interest rates

A significant number of buyers are reducing budgets in the face of rising interest rates and the cost of living.

Research by national estate agent Savills has shown that 29 per cent of buyers have reduced their budget for a property, with families and first time buyers feeling the most pressure.

The survey of more than 1,000 prospective buyers, undertaken at the end of August showed that while buyers remain optimistic in the medium term, immediate buyer urgency has stalled. 

Lack of stock remains a key issue, with 54 per cent of buyers saying it is inhibiting their ability to purchase a property. 

Low stock has been a driver of house price inflation, with the latest figures released by the Office for National Statistics showing that house prices had increased by 2 per cent from June to July, with the average house in the UK sitting at £292,000. 

At the same time, interest rates have been steadily rising, with the average two-year fixed rate now topping 4 per cent

Mortgage lenders have curtailed their products as a result, with the choice of products available in the residential sector falling by 13 per cent in August

While rising rates initially caused a frenzy of activity as buyers looked to lock in lower rates over the summer, they have reached a point where they are impinging on budgets, Frances McDonald, research analyst at Savills, said. 

“There’s now certainly less urgency in the market, with rising costs of debt impinging on the budgets of those most reliant on a mortgage. Increased costs of living are also making buyers much more conscious when it comes to how much they are willing to spend,” McDonald said.

“Ultimately, in the short term, the market will be predominantly driven by home owner need, rather than lifestyle influences which drove the market during the pandemic. Especially now that lockdowns are fading into distant memory.

“As a result, after more than two years of runaway house price growth, sellers will need to become much more realistic when it comes to pricing their home, especially as more stock comes onto the market.” 

While those looking to enter the market for the first time are cautious, the same effect is not yet evident on downsizers and relocators according to the research.

Those looking to downsize reported a greater commitment to move within the next six months, as did those looking to relocate and those living in regional parts of the UK.