High Mortgage Rates Forcing Londoners To Relocate

High mortgage rates are expected to prompt around 76,000 London homeowners to leave the capital this year, with 33,000 homes already purchased outside the capital in the first half of 2024. According to an analysis by Hamptons, nearly 50% of those leaving are moving to buy larger family homes, relocating an average of 39 miles from London in search of more affordable options. Despite a positive uptick in first-time buyers purchasing homes in London due to falling interest rates—reaching a record 48% in the first half of 2024 up from 41% in 2023, affordability remains a concern. In light of this, David Hannah, Group Chairman of Cornerstone Tax, emphasises that additional reductions in interest rates will improve housing affordability throughout London.

Even with falling mortgage rates, affordability across the UK remains a major issue, as first-time buyers on average purchased houses worth £443,550 – an increase of £39,360 on last year. The average house price in London stands at £523,000 significantly higher than the £305,000 average for the rest of England, with first-time buyers outside London saving £642 per month on mortgage payments. Although mortgage rates have decreased slightly since the Bank of England cut rates to 5%, they are still high compared to the low rates in recent years.

Research by Cornerstone Tax shows that 44% of people feel priced out of their desired locations due to rising house prices, with Hannah stating that interest rates must continue to be cut to reduce the affordability crisis in the UK. Hannah also maintains that keeping current stamp duty thresholds would invigorate the property market and the national economy. With homes valued at £450,000 or less exempt from stamp duty and those between £450,000 and £925,000 facing a 5% levy, the thresholds are overdue for a review. Adjusting these bands would not only benefit first-time buyers but also aid pensioners looking to move up the property ladder. This increased demand for mid-to-high-end properties could have a positive ripple effect, boosting sales and energising Britain’s stagnant housing market.

David Hannah, Group Chairman of Cornerstone Tax, comments: 

“The Bank of England made a positive step in the right direction when it cut interest rates. The monetary policy committee has recognised that a relentlessly hawkish approach has its harsh limits and since their consecutive decisions to raise the interest rate to 5.25%, we’ve witnessed chaos in the mortgage market dismantling the ambitions of first-time buyers. Additionally, a record number of landlords have exited the private rental sector, contributing to higher prices for tenants who once aspired to take their first step on the property ladder. 

“I’d urge the MPC to continue this momentum by considering another interest rate cut in their next meeting, even a reduction by a quarter percentage point would signal further optimism within the UK economy. A target base rate of 3-3.5% should be the overall goal if the BoE wants to truly prioritise prospective buyers.”

Source : Cornerstone Tax

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