Rising borrowing costs are beginning to test confidence in the UK housing market, although overall activity remains relatively stable, according to new data from Connells Group.
The data shows 83% of home movers agreed mortgage rates were above 4% in March, up sharply from 58% in February, marking the sharpest month-on-month increase since the market turmoil following the 2022 mini-budget.
Additionally, the average rate on new property purchases rose to 4.57% – its highest level since April last year.
Despite this change, buyer activity has proven more resilient than expected. Sales across Great Britain fell by just 2% year-on-year in March, suggesting that many households are continuing to secure transactions at lower rates than before.
Anisha Beveridge, research director at Connells Group, commented: “What sent the market into turmoil in March was not the level of mortgage rates, which were broadly back to where they were at this time last year, but the sharp change in direction and pace at which borrowing costs rose.
“Nonetheless, the market has been better than many feared. Buyer demand moderated, but not diminished.”
First-time buyers played a key role in maintaining activity, accounting for 34% of all sales in March – the highest proportion recorded for the month since 2006. This group saw the smallest increase in mortgage rates of any buyer type, while movers – particularly those trading up to higher-value properties – experienced the sharpest increase in borrowing costs as rates on lower loan-to-value products rose sharply.
Applicant registrations declined 4% year-on-year in March, in contrast to a slight increase in February. However, demand remains high compared to historical levels, with registrations still up 17% compared to March 2019.
Regional variations were clear, with Scotland and London recording annual increases in demand, while parts of the North and Midlands saw a more pronounced decline due to increased affordability pressures. The Southeast saw the largest decline in sales, falling 12% year-on-year.
Sellers appear to have reacted more cautiously to rising rates. The number of new properties coming to market in March fell 7% year-on-year, the sharpest decline in almost a year, indicating softening seller confidence.
However, the price remains stable. Only 16.8% of homes sold in England and Wales achieved a price below their final asking price in March, the lowest proportion since September 2025.
On average, properties sold at 1.5% below asking prices, suggesting limited downward pressure on values despite higher borrowing costs.
The data also highlights the extent to which recent activity has been supported by earlier mortgage deals. About 44% of homes completed in March had mortgage offers agreed in January or February, while almost half of buyers had secured deals through to 2025, when rates were lower.
“The stimulus from the cheap mortgage deals secured at the start of the year has moderated, while activity may moderate further in the near term as households adjust,” Beveridge said.
“However, financial markets have since stabilized. With fewer rate hikes now expected, this should allow mortgage rates to drop back down, even if not to year-ago levels,” he said.
“If that pressure eases, confidence is likely to rebuild, which will underpin the market during the year.”