Mortgage cost rises could hit London buyers the hardest

Market analysis has revealed where house price growth could stutter should monthly interest payments start to climb as a result of the latest interest rate increase.

Real estate debt advisory specialists Sirius Property Finance analysed property transactions across Britain since the last drop in interest rates in March 2020 and the latest increase to uncover what percentage of sales were funded by mortgage lending rather than by cash buyers.

Across Britain as a whole, 67% of all transactions to have been completed since March 2020 have done so with the help of a mortgage. 

Homebuyers in the South West have been least reliant on mortgage lending with just 60% of purchases completing with the help of a mortgage, followed by the North East (63%) and Wales (64%). 

In contrast, the high cost of purchasing a property in the capital means that 76% of all transactions across London have done so with the help of mortgage lenders, with homebuyers in the West Midlands (69%) also most in need of financial assistance when climbing the ladder. 

London also accounts for the top three areas of the market for mortgage property purchases at a more granular level. 

Barking and Dagenham ranks top, where 85% of all property purchases since March 2020 have been by mortgage funded homebuyers, with Waltham Forest (84%) and Lewisham (83%) also home to some of the highest levels of mortgage homebuyers across the nation. 

Other areas where an increase in mortgage costs could dent market activity and house price growth include Midlothian, Slough, Watford, Crawley, Thurrock, Harlow (82%), Croydon, Hillingdon (81%), Rushmoor, Greenwich, Bexley and Stevenage (80%). 

Nicholas Christofi, managing director of Sirius Property Finance, comments: “House prices have never been higher and so it’s hardly surprising that the majority of homebuyers require a financial helping hand in the form of a mortgage when looking to purchase a property.”

“On average, these homebuyers will pay around 9% more than their cash funded counterparts and so it’s these buyers who have generally helped drive the heightened levels of house price growth seen over the last year or two.”

However, Christofi says the areas of the housing market where mortgage funded buyers account for the largest proportion of activity are also those most susceptible to a drop in momentum should mortgage rates start to climb.

“While an increase in monthly mortgage repayment costs is unlikely to deter our appetite for homeownership completely, it will certainly see many reevaluate the total sum they are willing to borrow and therefore the price they are willing to pay for a property,” he adds.

“The good news is that the cost of borrowing remains very favourable despite the Bank of England’s decision to increase the base rate during the later stages of last year and, for the time being at least, those purchasing with the aid of a mortgage are still in a very strong position.”