Fresh analysis reveals that climbing mortgage rates in the first half of the year have broadly weakened purchasing power for UK homebuyers.

London buyers now face an average shortfall of approximately £35,500 in upfront deposits this year, while the national average deposit requirement has risen by £18,200 compared to the start of 2024.

According to property portal Zoopla, the onset of the Israel-Iran conflict triggered global market turbulence, which pushed up lenders' funding costs and drove fixed-rate mortgage deals higher. The average fixed-rate mortgage climbed from 4% before the conflict to a peak of nearly 5% in April, before easing back to around 4.8% currently.

A buyer who previously could afford a £200,000 loan now finds that the same monthly repayment secures only about £182,000 in borrowing capacity, representing a purchasing power decline of roughly 9%.

Where the market stands now

Richard Donnell, executive director at Zoopla, noted that average mortgage rates have stabilised but remain closer to 5% than 4%, with affordability continuing to be a decisive factor for many buyers selecting their next home.

Despite elevated rates, Zoopla's latest house price index points to tentative signs of recovery in the UK housing market. Over the past four weeks, property searches on its platform have risen by 7%, marking the first time in 12 months that all regions recorded increased search activity. The South East saw an 8.9% uptick, while the East of England posted 8.5% growth, suggesting a "autumn bounce" is taking shape.

Zoopla highlighted that during the early autumn selling season, which runs from late August into September, sellers often reduce asking prices to attract buyers.

Jeremy Leaf, a north London estate agent, observed that modestly higher mortgage costs have strengthened buyers' negotiating leverage, resulting in lower offers, particularly for apartments that have lingered on the market for some time.

House price growth has remained muted overall this year. Zoopla's latest price index shows prices rose just 0.9% in the 12 months to July. A 5% year-on-year increase in homes for sale is helping to keep price appreciation in check.

Wage growth over the past four years has provided some support to buyers. Office for National Statistics data shows average weekly earnings have climbed 23% since the third quarter of 2022.

Lucian Cook, head of residential research at Savills, pointed out that while first-time buyer household incomes have grown at a more moderate pace of 8%, the average first-time buyer house price has risen by only 1% over the same period.

Mortgage regulators have taken a more flexible approach to assessing borrower affordability, which is helping first-time buyers cope with higher mortgage costs. This shift can also lower deposit hurdles, opening the market to a broader pool of prospective buyers.

Cook added that the real-world impact will depend heavily on the trajectory of mortgage rates, movements in house prices, and the pace and scale of further regulatory easing by the Financial Conduct Authority.