Homebuyers will need to find an extra £18,200 as buying power plummets
Rates have increased from below 4% at the start of the year to around 4.8%, rising after the outbreak of conflict in the Middle East.
Homebuyers looking to move this year will need to gather an extra £18,200 just to keep their mortgage payments at the same level as they were in January, according to new figures.
Listen to this article
Mortgage rates have climbed from below 4% at the start of the year to around 4.8% for a new 75 per cent Loan-to-Value (LTV) mortgage.
That means a buyer who could afford a £200,000 mortgage at the start of the year can now only borrow around £182,000 while keeping their monthly repayments the same.
It represents a nine per cent drop in buying power.
The increase in mortgage rates comes amid ongoing economic uncertainty, with the conflict in the Middle East pushing up energy prices and contributing to higher inflation.
The Bank of England has kept interest rates at 3.75% throughout the year, despite hopes that rates would fall as inflation cooled.
But fixed mortgage rates have continued to rise as lenders base their pricing on expectations for future interest rates, rather than the Bank's base rate alone.
Buyers looking to make up the shortfall will now have to find a bigger deposit, accept higher monthly repayments or look for a cheaper property.
Traders are now expecting the Bank to keep interest rates higher for longer as it attempts to bring inflation under control.
London has seen the biggest fall in buying power, with new research from Zoopla showing buyers in the capital need to find an extra £35,500 to maintain the same mortgage payments.
That is almost twice the national average, reflecting the much higher cost of property in the capital.
Buyers in the North East have experienced the biggest hit in percentage terms, although the cash shortfall is smaller at £10,200.
The figures come despite signs of an “autumn bounce” in the property market following a quieter summer.
Searches for homes on Zoopla have risen 7% year-on-year, with demand increasing across every region of Britain for the first time in a year.
The South East and East of England recorded the biggest increases, with searches up 8.9% and 8.5% respectively.
The number of people looking to buy a home increased by 7% in the four weeks to August 16 compared with the same period last year, according to Zoopla.
House-hunting activity is now higher across every region of the UK, with the strongest increases seen in the east and southeast of England and Wales.
Zoopla said the figures suggest demand is beginning to return, although it could take time for increased searches to translate into enquiries and completed sales.
Richard Donnell, executive director at Zoopla, said: “Many buyers have taken a ‘wait and see’ approach over the summer months in response to higher borrowing costs and political uncertainty.
“The low point for activity was mid-July around the time of the World Cup final.
“Since then we have seen a steady increase in the number of people searching for a home, assessing their options ahead of the post-holiday rebound in sales market activity.
“This is a nationwide trend and the first time searches for homes are up across Britain this year.