Rising mortgage rates begin to take their toll

The rise in mortgage rates from a low of 1.5% last November to 1.8% in April is beginning to weigh on home purchase demand, with the new buyer enquiries balance of the RICS survey dropping into negative territory in May. Supply is also improving according to the survey, redressing the imbalance between strong demand and limited supply that has pushed up prices over the last two years. Indeed, the survey is now consistent with house price growth grinding to a halt by the end of the year. And given we expect mortgage rates to continue to increase to over 3.5% by mid-2023 as lenders rebuild their margins, we remain content with our view that house prices will fall by 3% next year.