The political and economic turmoil over the last few weeks has resulted in average mortgage rates spiking above 6% with ongoing uncertainty over the outlook for the UK’s public finances and economy, according to the latest (October 2022) Zoopla UK House Price Index.

The health of the housing market is inextricably linked to the health of the economy and, in particular, the cost of borrowing. There are two aspects to consider looking ahead. Firstly, how the final months of the year will conclude, and secondly, the outlook for 2023 in the face of higher mortgage rates.

Uncertainty is squeezing out new buyers
The sudden increase in mortgage rates represents the largest interest rate shock for new buyers since the late 1980s. The immediate impact has been on households without mortgages arranged at cheaper rates, most of whom are sitting on the side-lines.

According to Zoopla, the drop in buyer interest has been spread uniformly across all markets. However, those with cheap loans secured, as well as cash buyers, are continuing to make offers and agree sales, albeit at a slower rate than this time last year, down 25% on a year ago.

Pent-up demand to move remains though and households rushed to secure low-cost mortgages over the summer as rates started to rise. Bank of England data for mortgage approvals showed an unseasonal jump in mortgage approvals in August, up 17% over the month. This demonstrates an underlying desire to move among a proportion of households, driven by pandemic and other factors.