Moody's, the leading credit ratings agency, has warned UK house prices could fall as much as 10% over the next two years as high inflation and soaring mortgage rates trigger a correction in the UK housing market.
In a report Moody’s said: "The combination of less affordable mortgages and high inflation putting a dent in incomes will trigger a correction in the UK housing market."
"The relatively large share of short-dated or variable-rate mortgages exposes the existing stock to tightening monetary policy."
"Strong fundamentals such as a robust labour market, tight underwriting standards and housing supply shortages will prevent more severe credit implications."
Moody’s thinks the correction in UK house prices will be more pronounced than in many other advanced economies because the UK has a high proportion of variable or short-term fixed mortgages, compared to other countries such as Germany, the US or France.
Buy-to-let landlords, who hold 8% of the UK private housing stock, will also influence house prices if a large number choose to sell.
Moody’s explained: "To be eligible to refinance, landlords must comply with regulatory requirements to ensure rental income is sufficient to support mortgage payment costs. Landlords can pass on these costs to tenants, but for an average mortgage, this would mean raising rents by close to 20%, according to BOE estimates. Rents are currently increasing by around 5%."