Rising mortgage rates and cost-of-living crunch hits housing market

Myron Jobson, senior personal finance analyst at interactive investor, comments on the latest Halifax House Price Index.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “It is becoming increasingly clear that the growing affordability hurdle is stopping the runaway housing market in its tracks.

“A combination of rising mortgage rates, which have hit levels not seen since the financial crisis, and the cost-of-living crunch has applied the brakes to the housing market, leading to a slowdown of both buying activity and purchase prices. 

“Soaring mortgage rates have become a particular pain point for buyers. The housing market was buffeted by the mortgage market turmoil last month in the aftermath of the ill-fated mini-budget, which sent rates soaring and led to the withdrawal of some products temporarily from the market. This has pushed many wannabe homeowners to the sidelines. While the mortgage marketplace is on a sturdier footing, the likelihood of further interest rate rises to rein in rampant inflation means things could get worse before they get better from an affordability perspective for buyers.

“First-time buyers continue to have a rough time. Both home prices remains high compared to yesteryear and mortgage rates have risen, while soaring inflation is eating into disposable incomes - making it harder to save for a deposit. Fast-rising rents are not offering any relief and could keep some wannabe homeowners in the hunt for a home for longer than they would like.

“While home prices are still above what they were one year ago, with a lack of inventory of homes propping up prices in many parts of the UK, it is clear that the runaway housing market is running out of steam as affordability pressures bite.”