House prices could fall by at least 10% next year, experts warn

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Soaring interest rates could see house prices in the UK plunge by at least 10% in the next year, with mortgage brokers warning even steeper reductions could be on the horizon.

Leading economists have issued a series of apocalyptic predictions for the housing market following the announcement of last week’s disastrous mini-budget, which has sent the value of the pound plunging to a record low against the US dollar and UK government bond prices crashing.

Swiss bank Credit Suisse said on Tuesday that UK house prices could ‘easily’ fall between 10% and 15% over the next 18 months if the Bank of England imposes aggressive interest hikes in order to keep inflation in check.

Analysts predict interest rates could rise from 2.25% to over 6% next year, a move which would make it significantly harder for first-time buyers to get approved for mortgages, and encourage prospective buyers to delay their purchases.

This decline in demand could result in a serious drop in house prices across the board and see cash buyers regain the upper hand in the market.

Speaking on BBC Radio 4’s Today programme, senior mortgage technical manager Ray Boulger said he thinks we can expect to see ‘a significant fall in house prices, perhaps around 10% next year’.

He added: ‘The key factor in house prices is how much people can afford on their monthly mortgage. The biggest issue is the monthly cost.

‘With the cost shooting up so far a lot of people thinking of buying are going to rethink those plans.

‘They may not buy at all. If they are going to buy they will buy at a lower level.’

Graham Cox, director of Bristol-based Self Employed Mortgage Hub said: ‘Unless we are very lucky and inflation falls much more quickly than predicted, I don’t see any other outcome than a sizeable fall in house prices, possibly 20%-plus over the next two to three years.

‘I’ll be accused of being a doom-monger, but if you use simple maths and common sense, how can house prices not fall?

‘A lack of housing supply won’t help one iota when mortgage rates are somewhere between 5% and 7%, as is likely over the coming months.

‘First-time buyers won’t be able to borrow as much, therefore they won’t be able to offer as much. It’s as simple as that. 

‘The truth is, housing is vastly overpriced and decoupled from average wages thanks to extended terms, higher income multiples and, above all, dirt cheap rates. With rates on the rise, the decade-long property bubble is about to burst. 

‘The worm has turned. It’s a buyer’s market now.’

His calls were echoed by Scott Taylor-Barr, financial adviser at Shropshire-based Carl Summers Financial Services, who said: ‘The UK housing market is vastly undersupplied and so a fall in prices can really only be triggered by a couple of things: someone building and then releasing a million homes onto the market all in one go, or lenders withdrawing mortgages meaning that only cash buyers, or those with really big deposits, can purchase.

‘I’m not aware of anyone secretly building a million houses, but the second one is scarily looking like becoming a reality. Our hope is that markets settle quickly and lenders return with their full, albeit higher priced, product ranges soon. If not, the housing market is looking extremely vulnerable.’

A 15% fall in the value of property would see the price of a £200,000 home slump by £30,000, with lenders such as Santander and Yorkshire Building Society refusing to offer mortgage deals for new customers in anticipation of a rise in rates.

Nationwide also became the first big lender to increase fixed-rate deals, with its two-year rate rising to 5.59%- a sharp increase from the 2.54% rates it was offering three months ago.

Around 1.8 million people are set to refinance next year, with many homeowners steeling themselves for a sharp increase in their monthly repayments.

Given that an estimated 36% of household wealth is said to be tied up in property, any steep increases to monthly payments could spark a wave of mortgage defaults, which could provide serious knock-on consequences to the country’s economy and banking sectors.

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