Housing market slows as borrowers brace for higher rates

More than a quarter of homeowners are overpaying on their mortgages as fears of future interest rate rises continue to weigh on the housing market, new data suggests.

Research indicates that 27 per cent of borrowers are making additional payments to reduce their debt faster, while one in five of those remortgaging are seeking to lock in a new deal as soon as possible to guard against further volatility.

The trend reflects growing unease among households navigating a prolonged period of higher borrowing costs, even as many are still transitioning off ultra-low fixed-rate deals secured during the pandemic.

Early signs of this shift are already visible in lending data. Figures from Barclays show that the share of customers borrowing for remortgaging rose by nine percentage points year-on-year in March, compared with other reasons such as moving home or entering the market for the first time.

However, much of this activity was set in motion before the recent escalation in geopolitical tensions, suggesting the increase is largely driven by borrowers rolling off five-year fixed deals agreed in 2021, when interest rates were at historic lows.

For many households, the changing financial backdrop is reshaping decisions about whether to move at all.

Economic uncertainty remains the single biggest barrier, cited by 29 per cent of existing homeowners as a factor that could delay or prevent their next move. Other pressures include moving costs (28 per cent), stamp duty (27 per cent), mortgage rates (24 per cent), and the widening price gap between current homes and potential purchases.

The strain is compounded by stagnant real incomes. Nearly half of working adults say their wages are failing to keep pace with rising living costs, limiting their ability to climb the property ladder.

As a result, buyers are adjusting their expectations. The proportion of purchases below £500,000 has risen to 73.2 per cent, up from 70.5 per cent a year earlier, while more buyers are relying on smaller deposits.

Among so-called “next-time buyers”, the share putting down less than £20,000 has surged to 56.7 per cent, up from 43.2 per cent over the same period, highlighting the extent to which affordability pressures are reshaping the market.

The challenges are particularly acute for those attempting to move beyond their first home.

Second-steppers — homeowners looking to buy their next property — estimate they need to find an average of £75,648 to make the move, on top of any equity released from selling their current home. This includes £41,751 for a deposit, £28,112 in stamp duty, and nearly £6,000 in associated costs such as legal fees.

By contrast, those further up the ladder face a smaller financial hurdle. Buyers purchasing their third home or beyond estimate, need £52,651 on average — almost £23,000 less — reflecting the greater equity they have accumulated.

Indeed, more than two in five of these more established homeowners say they would not need to save anything additional for a deposit.

The figures underline a growing divide within the housing market, where those already established are better placed to navigate higher costs, while newer buyers face increasingly steep barriers.

With borrowing costs still elevated and economic uncertainty lingering, the data suggests the property ladder is becoming harder to climb — and, for many, easier to step off altogether.