Assessing the Effects of Rising Borrowing Costs on Homebuyers and the Housing Market in the UK

Assessing the Effects of Rising Borrowing Costs on Homebuyers and the Housing Market in the UK

…By Judah Olanisebee for TDPel Media.

Declining House Prices and the Impact of Increasing Borrowing Costs


According to the Nationwide Building Society’s index, house prices in the UK fell by 3.5% annually in June.

This decline follows a 3.4% drop in May. While prices remained relatively stable over the month, increasing by a modest 0.1%, this reversed a 0.1% decline observed in May.

The average house price in June was recorded at £262,239.


The Effect of Rising Borrowing Costs

Robert Gardner, Nationwide’s chief economist, highlighted that longer-term interest rates, which influence mortgage pricing, have experienced a significant increase in recent months.

This surge is a response to data indicating that underlying inflation in the UK economy is not decreasing as rapidly as anticipated.

Consequently, investors now expect the Bank of England to further raise its policy rate and maintain it at higher levels for an extended period.

The Potential Consequences for the Housing Market


The sharp increase in borrowing costs is anticipated to exert a substantial drag on housing market activity in the near future.

Mr. Gardner noted that mortgage applications have not yet declined, and consumer confidence indicators continue to improve, although they remain below long-run averages.

However, the higher borrowing costs are likely to impact sentiment and buyer behavior.

Affordability Challenges for Prospective Buyers

Nationwide revealed that a typical first-time buyer would need a 10% deposit, which is equivalent to approximately 55% of their gross annual income.


While this percentage has decreased from the peak of 59% in late 2022, it still surpasses the levels observed prior to the 2007/2008 financial crisis.

Obstacles to Saving for a Deposit

Mr. Gardner emphasized the difficulties faced by prospective buyers in saving for a deposit, as the sharp rise in rents and persistent high inflation rates make it challenging to accumulate sufficient funds.

He suggested that a combination of income growth and modest price declines could gradually improve affordability, particularly if mortgage rates stabilize.

Potential Impact on Mortgage Holders


Borrowers coming off two-year fixed-rate mortgage deals may experience an increase of £385 per month, while those on five-year deals could face an increase of around £315 per month, according to Mr. Gardner.

Lenders are expected to assist borrowers as much as possible during this period of rising costs.

Expert Opinions and Market Outlook

Property professionals have provided their insights on the situation.

Nathan Emerson, CEO of Propertymark, mentioned that although there has been a slight decrease in the number of buyers entering the market compared to the frenzied sales market of the previous year, many individuals are adopting a more cautious approach.


Samuel Tombs, chief UK economist at Pantheon Macroeconomics, predicted that the increase in mortgage rates could lead to a higher number of buy-to-let landlords selling their properties, resulting in a larger supply of unsold properties and increased bargaining power for buyers.

Tom Bill, head of UK residential research at Knight Frank, anticipated a 10% decline in prices spread over this year and 2024, citing the significant increase in mortgage costs compared to 18 months ago.

Various estate agents also shared their observations on market activity and buyer behavior.

Analyzing Housing Market Trends

The current housing market is undergoing challenges due to declining prices and the impact of rising borrowing costs.


Affordability concerns and difficulties in saving for a deposit continue to pose obstacles for prospective buyers.

While the market remains active and some buyers still find purchasing financially attractive, there are indications of shifting dynamics and increased caution among buyers.

Market experts expect ongoing pressure on prices and potential changes in buyer behavior, emphasizing the need for careful monitoring of market trends and developments.

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