Mortgage rates drive buyers away from London property

Higher mortgage rates have replaced the 'race for space' as the primary reason for buying outside of London this year, research suggests.

Analysis by Hamptons found first-time buyers made up a record 30% of purchasers who traded London for another region in Great Britain, up from 27% last year and more than double the proportion (12%) recorded a decade ago.

With few able to afford to buy where they currently rent in the capital, a move to a more affordable area outside the M25 is set to save a typical first-time buyer with a 15% deposit £8,656 in mortgage payments each year, Hamptons said.

Consequently, so far this year more than a third (37%) of London-based first-time buyers left the capital to purchase a home, the second highest figure - after 2018 - since Hamptons’ records began in 2009.

Overall, Londoners purchased 32,600 properties outside the capital during the first six months of this year.  

A broader slowdown in the number of sales taking place across the country has meant that, aside from the first half of 2020 during the pandemic, this marked the second lowest figure since 2015.  

More than three-quarters (78%) of these homes were bought by a first-time buyer or mover permanently leaving London for another region in Great Britain, the research suggests. They purchased 25,350 homes outside the capital during the first six months of 2023, 5,800 or 19% fewer than the same period of 2022. 

If outmigration continues at the same pace throughout the remainder of the year, it’s likely that 53,780 Londoners will permanently leave the capital to buy a home in 2023, according to the research.  This almost matches the total number of homes sold in Wales last year at 56,000, Hamptons said.

Given that a record 85% of London leavers moved to a more affordable area, this is set to save mortgaged buyers a total of £357m each year in annual mortgage payments this year. 

This compares with £157m savings for those who left London in 2019 when mortgage rates were lower. 

Hamptons highlighted that leaving London is also a way for households to reduce or even pay off their mortgage debt.  So far this year 18% of London leavers bought their new home without a mortgage, up from a low of 14% in 2020.

Aneisha Beveridge, head of research at Hamptons, said: “Higher mortgage rates have paused the unwinding of arguably the biggest Covid-induced trend in the housing market – London outmigration.  

“Rather, this year London outmigration has increasingly been driven by need over want as higher mortgage rates reduce buyers’ budgets, pushing them in search of smaller homes in more affordable areas.  

“Most of these movers still look to retain strong links with the capital.  This has supported values of smaller homes in some of the more affordable towns within an hour’s commute of London.

“Looking ahead, the likelihood that mortgage rates will stay higher for longer may keep the pace of London outmigration up.  

“We’re also reaching the point where a large number of households who bought a home at the peak of the London market between 2014-2016 might be looking to move over the next few years.  With property prices in parts of the capital lower today than when they bought, trading the city for a cheaper area outside the M25 might be the only option for those needing to upsize.”