Zoopla: 'Mortgage stress tests will limit housing market downturn'

The housing market is in a better position to weather a downturn than in previous economic cycles, Zoopla claims.

The portal argues that the headwinds for the sales market are building due to the cost of living rising and increasing mortgage rates.

It warned the environment will get tougher for first-time buyers as their income is squeezed and also for those looking to trade up with larger mortgages as pricing will be higher.

But Richard Donnell, director of research for Zoopla, suggested the market is in a better place to weather the incoming storms.

He said: “History shows that it is the sudden changes in levels of spending on housing that are most closely linked to changes in house price inflation and sales volumes. 

“The downsides for prices and sales are most common during recessions, when consumers need to rapidly adjust what they spend in response to unemployment or higher mortgage rates. 

“A high proportion of today’s mortgages are on fixed-rate loans and stress-tested to see if they can afford a rate of up to 7%. 

“This has baked resilience in the market that will limit the downside for prices.”

It comes as Zoopla’s latest House Price Index for July showed stock has increased to 14 homes per agent, up from below 12 in the spring but still under the pre-pandemic average.

However, the report showed there are signs of waning demand particularly in higher value markets of London and the South East of England.

It said: “Buyer demand is registering the usual summer slowdown and underperforming last year, as economic uncertainty increases. 

“Buyer interest this summer is weaker than last year but still above the 2017-2022 average. While allowing for seasonal factors, we expect demand to continue to underperform against last year as we move into the autumn.”

UK house prices still increased by 8.3% or £19,800 over the past 12 months to £256,900, Zoopla said.

It calculated that the average first time buyer now needs an additional £12,250 of income to buy a home compared with a year ago and an additional £35,000 in London as mortgage rates are expected to reach 4%

Donnell added that market activity will start to get hit as it enters 2023 once higher mortgage rates and rising energy bills become more common.

He said: “The primary risk remains in further increases in the base rate in order to control inflation control inflation, which will have a knock-on impact on mortgage rates.
“The higher rates move above 4%, the greater the impact on prices and sales volume and where homeowners have plenty of equity to cushion any future price falls.