Demand for property currently remains above the five-year average, but there are clear signs that the impact of higher mortgage rates will have an adverse affect on market activity in the second half of this year, especially for first-time buyers and property purchasers in southern England, according to Zoopla.

Political and economic uncertainty are having a negative impact on the housing market, with soaring inflation and rising mortgage costs starting to take their toll, the property portal said.

Zoopla points out that higher mortgage rates for new loans – which have more than doubled since January 2022 – are yet to impact the market.

Whilst those buying homes with a mortgage may be on higher incomes, the jump in mortgage rates for new buyers will compound cost of living increases and impact house sales from autumn into 2023, analysis undertaken by Zoopla shows.

Growing pressure on household budgets and on-going re-evaluation by homeowners of their property  brought about by the pandemic will support overall sales. This does not however mean higher house prices as higher costs will make consumers more conscious of their overall spending.

Until recently, the repayments for a mortgage were lower than renting in all regions – 2% mortgage rate – outside of the capital. In London and regions in the South of England, the mortgage rates increasing to 4% would push the income to buy to be on a par with, or above the average rent. This shift is likely to affect demand from those seeking to get onto the property ladder primarily in southern England.

The latest property price data released by Zoopla reveals that home prices continue to grow with the average home having increased by 8.3% or £19,800 in the past 12 months. The South West and Wales are jointly the best performing regions, with annual house price growth of 10.6% .

Demand has fallen to under a third of levels seen in spring, however, at 17% nationally, it’s still above the 5-year average. The highest level of buyer interest in the UK can be found in the West Midlands (+35%) and the North East (+29%) with the market in London weakest, coming in at 6%.

First-time buyers are now the largest buyer group accounting for up to 35% of sales this year to date and are driving the market with pandemic related factors and a desire to own a home currently offsetting the increasingly uncertain economic outlook.

Many may be surprised that the property sales market is not weakening faster given the cost of living crisis, rising base rates and sharp drop in consumer confidence. However, as homebuyers often tend to be higher-income households with more disposable income, it’s likely they’re not yet feeling the effects of increased living costs. Lower income households however will already be affected as they tend to rent or own their home outright and spend more of their disposable income on essentials and utilities

Richard Donnell, director of research at Zoopla, said: “The housing market has been resilient to the rising cost of living so far. The new energy price cap will add to the pressure facing households especially those on lower incomes. We see the recent jump in mortgage rates having a greater impact on housing market activity and prices moving ahead.  First time buyers on lower incomes, those looking to trade-up using a bigger mortgage and buyers in the south east of England will all feel the greatest impact on affordability.

“We expect a growing number of households to continue to re-evaluate their homes as a result of ongoing pandemic factors and with further impetus from the rising cost of living. This will support overall sales numbers but the rate of price inflation will continue to slow.”

“Reflecting on the latest research by Zooopla, Jayne Twiddle, national operations director at Hunters, commented: “The economic climate does suggest challenging times ahead. With interest rates rising and forecast to continue this upward trajectory, coupled with significant cost of living rises and supply chain issues which persist, there is reason to be cautious.

“However, Hunters Group offices – approximately 200 locations nationally – had their highest exchange numbers since September 2021 in July 2022 and our pipeline grew. This shows that there is still incredibly strong demand. Interestingly, despite the school holidays in July, listings across the Group were the 3rd highest in 2022 so this indicates that supply doesn’t appear to be abating too much right now.

“In our experience, a tough market usually sees only the best agents survive. Any cooling of the market will inevitably see the agents with the best service, sensible cost controls and an unambiguous focus on understanding their individual customers’ requirements excel. The best agents should not be concerned by any slowdown.”