Wales is now particularly vulnerable to a collapse in property prices due to soaring mortgage rates, a major property company has warned.
Zoopla said countries and regions that had seen a sharp rise in prices during the pandemic may now see the biggest decline. Wales was the part of the UK that had seen the highest price rises of all during the pandemic – by 27%.
But London and the south east of England will be hit the hardest because house prices are most out of step with wages and the market is therefore most dependent on borrowing, they said.
Yesterday saw a record drop in home loan product choice as the economic fallout from Friday’s mini-budget continues. Raising interest rates by the Bank of England to bring down inflation has had an impact on homeowners’ mortgage payments.
But while property prices in Wales could fall, rising interest rates will still put mortgages out of reach for many buyers. The interest rate could hit 5.75% next year, pushing average mortgage rates up to 6%, putting mortgages at their highest level since the early 1990s.
Buyers will be able to borrow 28% less on average, causing property prices to plummet by a similar amount, according to Zoopla.
They said the number of homes sold below asking price had already reached a three-year high.
“Rising mortgage rates are expected to have the biggest impact on areas where homes are already at the upper end of the market, or where house prices have surged during the pandemic,” Zoopla’s Nic Hopkirk said. .
“Our research shows that higher mortgage rates will reduce purchasing power by up to 28% when rates rise from 2% to 5%. That’s if buyers want to keep their monthly mortgage payments the same.
“And the impact of that is expected to last until 2023.”
On Tuesday, the Welsh Government announced that people buying homes in Wales for less than £225,000 would pay no tax, to offset rising mortgage rates.
“This is a change tailored to the unique needs of the housing market in Wales and contributes to our wider vision for a fairer tax system,” said Finance and Local Government Minister Rebecca Evans. .
“61% of home buyers will not pay tax on their purchase. These changes will provide support to those who need it and help them cope with the impact of rising interest rates.
“We also know that helping people at the lower end of the market will be of particular benefit to first-time buyers. We’re helping people buy their first home in a variety of ways, including condominiums and program purchase assistance, and I’m pleased to be able to extend that support through these land transaction tax changes.
The land transaction tax payment threshold is raised from £180,000 and the change will come into effect on October 10.
There will also be a slight increase in the rate of land transaction tax for homes that cost more than £345,000.
This decision aims to ensure that the threshold for paying the tax reflects the rise in house prices over the past two years.
People who buy homes under £225,000 will pay no land transaction tax.
Anyone buying a home costing less than £345,000 will see a reduction in the tax they pay, up to a maximum of £1,575.
People buying homes worth more than £345,000 will see a boost – up to £550 – but these only account for around 15% of property transactions in Wales.
All other elements of land transaction tax will remain unchanged, meaning no tax relief is given to buyers of second homes in Wales, unlike the stamp duty property tax in England .
The changes follow changes to stamp duty property tax (paid in England and Northern Ireland) announced by the UK government in financial statements last week. The Welsh government was considering making changes to its budget later this year, but is now making changes to clarify the housing market.
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