Mortgage cost increases could hit London house prices the hardest

Market analysis by real estate debt advisory specialists, Sirius Property Finance, has looked at where Britain’s homebuyers are most reliant on the mortgage sector when making a purchase and where house price growth could stutter should monthly interest payments start to climb as a result of the latest interest rates increase. 

Sirius Property Finance analysed property transactions across Britain since the last drop in interest rates in March 2020 and the latest increase, looking at 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%). 

Managing Director of Sirius Property Finance, Nicholas Christofi, commented:

“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, 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. 

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.” 

Transaction data for both cash and mortgage funded sales sourced from the Gov.uk UK House Price Index between March 2020 when interested rates were last reduced and October 2021 (latest available data).