UK Homebuyers Face New Blow as Sales Delays Risk Mortgage Offers

UK property buyers worried about the surge in mortgage rates have a new headache to deal with. 

Home purchases are now taking almost five months to legally complete, putting buyers at risk of missing out on home loan offers they secured at significantly lower rates but which are only valid for six months.

Requests for new home loans

Transactions now take about 134 days to conclude compared with 118 days in September last year, according to data compiled by Landmark Information Group Ltd. In the south west of England, the average is 140 days. The growing bottleneck reflects the backlog of sales after the pandemic spurred heavy demand and also worsening sentiment in the market.

“Buyers are becoming more cautious, and the ridiculously slow legal process means good deals done months ago don’t look so good now and the number of fall throughs is increasing,” Simon Milledge of broker Jackson-Stops said in a survey by the Royal Institution of Chartered Surveyors published Thursday.

A Bank of England survey released on the same day shows British lenders expect less credit to be available across mortgages until at least the end of November. Requests for new home loans are set to drop during that period of time while re-mortgaging demand rises, according to the Credit Conditions Survey. 

Higher mortgage rates

This “will be a challenge for homeowners as higher mortgage rates will put additional pressure on people already feeling the financial squeeze,” said Serge Gwynne, a partner in corporate and institutional banking at consultancy Oliver Wyman. 

British mortgage costs have rocketed since former Chancellor Kwasi Kwarteng roiled markets with a package of unfunded tax cuts on Sept. 23, a move which eventually led to his exit from the role this week. The chaos that followed the mini-budget saw key mortgage rates breach 6% for the first time in over a decade, while demand for homes dropped by a fifth to its weakest level since the coronavirus pandemic started, according property portal Zoopla.

The rise in mortgage rates has slowed slightly in the past few days, offering a glimmer of hope that the tide will eventually turn. The average five-year fixed-rate home loan rose to 6.29% on Friday after dropping for the first time in over two weeks the previous day. That’s as the two-year fixed rate deal edged higher to 6.47% following two days at 6.46%, according to Moneyfacts Group Plc.

The slight slowdown provides little relief for British homeowners. With rates at 6%, a two-year fixed-rate mortgage will cost about £10,000 ($11,199) more during the fixed period than the same product issued last December, when rates were about 2.34%, according to Moneyfacts data. That’s based on a mortgage of £200,000 borrowed for 25 years.

“Economic challenges are clearly affecting the housing market and buyer confidence is very low,” Paul Lynch at broker Romans in Guildford said in the RICS survey. “Buyers are telling us now they are going to sit tight and delay buying for three to six months and review the market then. Sales in the pipeline are also affected and some buyers have withdrawn or reduced offers.”