London buyers need £35,500 more for deposits

Londoners have experienced a nine per cent reduction in their property buying power as mortgage rates continue to climb. This means that to purchase the same home with the same monthly mortgage repayment, buyers in the capital must now find an additional £35,500 for their deposit. This analysis comes from new research by Zoopla.

Mortgage Rate Increases

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The average rate for a five-year fixed mortgage now stands at approximately 4.8 per cent for a new 75 per cent Loan-to-Value (LTV) mortgage. This is an increase from below 4 per cent recorded in January. For instance, a UK homebuyer who could secure a £200,000 mortgage at the start of the year can now borrow around £182,000 for the same monthly repayment, reflecting the nine per cent drop in their borrowing capacity.

To maintain the same monthly payments, a buyer would need to increase their deposit by £18,200 on a typical property. In London, where property values are considerably higher than the UK average, this reduction in buying power has a more pronounced effect. The calculation assumes a 75 per cent LTV mortgage over a 27-year term for a five-year fixed-rate loan at the current 4.8 per cent rate, compared to 4 per cent in January.

Impact on London Property Market

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The increased cost of borrowing has led some prospective buyers to postpone their property purchases, contributing to a slowdown in the market. Zoopla reports that sales across the UK have fallen by six per cent year-on-year. Tom Bill, Knight Frank's head of UK residential research, noted that house price growth is nearing zero due to high borrowing costs and uncertainty surrounding potential tax changes. He indicated that while the Bank of England is unlikely to raise rates soon, mortgage rates remain about one percentage point higher than before the Middle East conflict began. Bill anticipates prices will remain largely flat for the remainder of the year.

In July, house prices in London decreased by one per cent compared to the same month last year, a slight acceleration from the 0.6 per cent drop seen in June. The average property price in London is now £525,400. While many expensive areas in the south of England have experienced the most significant price declines, more affordable regions in the North West, Scotland, and the North East have seen prices rise. Northern Ireland recorded the highest house price growth at 5.4 per cent.

Market Activity and Future Outlook

Despite the challenges, there are indications of a market shift as buyers return after the summer period. Searches for homes across the UK have increased by seven per cent compared to the same time last year, reaching their highest level in 12 months. In London specifically, searches are up by 7.3 per cent. Richard Donnell, executive director at Zoopla, stated that many buyers adopted a 'wait and see' approach during the summer due to higher borrowing costs and political uncertainty. He observed a steady rise in home searches since mid-July, with buyers assessing their options before the expected post-holiday market rebound. Donnell added that while affordability remains a concern with mortgage rates around five per cent, a five per cent increase in property listings nationwide offers buyers more choice this autumn.