First-time buyers retreat as mortgage rate rise triggers sharp drop in demand

First-time buyer enquiries have plunged 27% year-on-year as higher mortgage rates force more prospective homeowners to put their plans on hold.

New figures from Zoopla show a sharp slowdown in demand following the Bank of England’s decision to raise Bank Rate to 4%.

The weakness extends across the wider housing market. Sales agreed fell 10.5% year-on-year in the week to 8 November, while the number of homes for sale increased 8.6%.

Higher borrowing costs have reduced buyers’ purchasing power by an estimated 15% since the start of the year.

The figures suggest a growing mismatch between supply and demand, putting further pressure on sellers to adjust their asking prices.

Southern housing markets face growing pressure

The imbalance is most pronounced across southern England, where property listings continue to rise despite falling sales.

In the South East, available stock increased 12.4% year-on-year, while sales agreed dropped 16.2%. House prices fell 0.6%.

The East of England recorded a 17% increase in homes for sale alongside a 7.6% fall in sales. Prices declined 0.5%.

London also recorded weaker activity. Sales agreed fell 6.1%, while available stock increased 6%. Average house prices dropped 1% annually.

The South West saw a 12% increase in available properties, with prices falling 0.4%.

The figures highlight mounting pressure on sellers, particularly in markets where higher mortgage costs have stretched affordability.

North-south divide widens

Northern England continues to record annual house price growth despite weaker sales activity.

Prices increased 3.2% in the North West and 2.4% in the North East.

However, sales agreed fell 16.4% and 23.5% respectively, suggesting higher borrowing costs are affecting transactions even in more affordable markets.

Scotland was the only region to record an annual increase in sales agreed, up 1.4%. House prices also rose 2.5%.

More homes available for first-time buyers

Despite weaker demand, first-time buyers who can secure mortgage finance have more properties to choose from.

Zoopla reported a 14% annual increase in two-bedroom houses for sale.

The number of properties priced below £200,000 also increased 13%, offering greater choice at the lower end of the market.

Richard Donnell, executive director at Zoopla, said: “First time buyers are the engine of the housing market accounting for 4 in 10 sales last year.

“Higher mortgage rates have reduced the buying power of all buyers by an average of 15% compared to the start of the year.

“Higher mortgage rates over the year have reflected expectations of further increases in the base rate, with the Bank of England decision last week making more buyers pause and wait.”

Donnell warned that sellers must respond to changing market conditions.

“The good news for those ready to move is that there are more homes to choose from, particularly at the more affordable end of the market. Sellers need to recognise that buyers have more choice and pricing realistically is increasingly important.”

Agents report buyers taking a cautious approach

Nathan Emerson, chief executive of Propertymark, said economic uncertainty and the prospect of further policy changes were weighing on buyer confidence.

“With continued global uncertainty and a housing market in which cost-of-living concerns remain at the forefront of many people’s minds, particularly among first-time buyers, it is perhaps unsurprising that many prospective buyers may choose to wait until after the Autumn Budget to see what support or measures might be announced to assist them,” he said.

Emerson added that Propertymark agents continued to report steady prospective buyer registrations and new instructions.

“While some buyers may be taking a more measured approach in the current climate, underlying interest in the housing market remains relatively consistent.”

Mortgage costs remain key obstacle

Tom Bill, head of UK residential research at Knight Frank, said higher borrowing costs had delayed moving decisions throughout the year.

“First-time buyers are particularly affected because of the need for a deposit and the increased mortgage rates that are associated with higher loan-to-value ratios,” he said.

Bill acknowledged the government’s recently announced Your First Home scheme but argued that international developments would have a greater influence on borrowing costs.

“The Your First Home scheme announced by the chancellor will help, but events in Washington rather than Westminster are shaping the outlook for the UK housing market.

“A lasting diplomatic solution in the Middle East would lower energy prices and inflation expectations and that would be of greater benefit to first time buyers than anything announced in the Budget.”