Price discounts jump as rising mortgage costs ‘spook’ UK housebuyers

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Two-fifths of UK sellers are accepting discounts of more than 5 per cent on the asking price of their property, reflecting the impact of rocketing mortgage rates and the wider cost of living crisis, according to property website Zoopla.

In the past two weeks, 42 per cent of owners accepted at least that level of discount to push a sale through, the research found, a sharp rise on the year-to-date average of 35 per cent. It predicted that sellers would increasingly accept bigger discounts over the summer, traditionally a quieter time in the housing market. 

The recent surge in mortgage rates has “spooked” buyers and forced sellers to compromise on price, said Zoopla’s research director Richard Donnell. “This is a signal that buyers are becoming more price conscious. Sellers are becoming more realistic.”

The analysis looked at the impact of mortgage rates increasing from 4 to 5 per cent on a purchaser with a 75 per cent loan-to-value mortgage and concluded it cut their buying power by 11 per cent. This figure jumps to 20 per cent on a 2 point rise in mortgage rates to 6 per cent.

On Tuesday, the average two-year fixed rate was 6.26 per cent, while five-year fixed products were averaging 5.87 per cent, according to data provider Moneyfacts. 

Zoopla predicted that property prices would fall by 5 per cent during 2023. “Even if prices fall 5 per cent by the end of this year, they’re still going to be 15 per cent higher than they were before the pandemic. So there’s still equity for people to negotiate with and I think that’s what’s happening,” Donnell said.

He argued the effect of fast rising mortgage rates on house prices would also be limited because buyers now had the option to reduce their mortgage payments by switching to interest-only loans or extending the term of the mortgage.

Mortgage rates continued to edge up this week with three of the biggest lenders — HSBC, TSB and Halifax — announcing further increases would come into effect from Wednesday.

Zoopla’s data found that the proportion of sellers cutting their asking price by 10 per cent had remained relatively stable at one in six.

“It’s not quite like a January sale, but it’s obviously starting to bite and people are readjusting their expectations as a result,” said Henry Pryor, an independent buying agent, who has been involved in recent deals where the asking price was cut by 10 per cent.

Asking prices have always been “aspirational”, he added, and those aspirations were now colliding with economic and financial realities. “Sellers really have got to bite the bullet.” 

Pressure on house prices is greatest across the south of England, where homes are more expensive, and on properties nationwide priced above £400,000, which often require bigger mortgages, said Donnell. 

“If you have a decent sized mortgage in the south of England you might end up having to put an extra £300 to £600 in your mortgage every month. That’s going to put people off buying.”