Turmoil in the UK’s financial markets prompted analysts to predict house prices could fall by as much as 20% amid “carnage” in the mortgage sector and warnings of a big jump in borrowing costs on the way, according to a report in The Guardian.
Despite the worsening cost of living squeeze, the property market has been defying the doomsters for months. That could finally be about to change, following the chaos unleashed by Kwasi Kwarteng’s mini-budget, the report said.
Ray Boulger, the senior mortgage technical manager at home loans broker John Charcol, predicted a fall of “perhaps around 10%” next year while analysts at the likes of Credit Suisse said it could be between 10% and 15%.
Others claimed it might be even more serious than that.
Graham Cox, director of the firm 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%.”
He claimed that “the decade-long property bubble is about to burst … It’s a buyer’s market now.”
According to most of the published data, house prices have surprised many by continuing to rise: according to the Halifax and Nationwide, they typically went up by 0.4% and 0.8% in August respectively.
Nationwide said the annual rate of UK house price growth was still (just) in double digits: 10%, down from 11% in July.
However, one of the elements that has been keeping the market buoyant is that demand has been outweighing supply – in other words, a shortage of homes for sale has been continuing to drive prices up.
A lot depends on what happens with supply going forward, and whether people who are currently thinking about buying are going to scale down their ambitions or throw in the towel and ditch their plans for now.
Ian Hewett, the founder of the Bearded Broker in Ashford, Kent, said his local estate agents’ apparent lack of stock was “startling”, adding: “Yes, mortgage rates have increased dramatically, along with all household bills, so affordability is going to be a challenge, but the extreme lack of stock will likely prevent a crash even if demand drops off sharply.”
However, homeowners have been warned to brace themselves for a “significant” increase in interest rates from the Bank of England, which will mean much more expensive mortgages for the 2.2 million people currently on a variable rate. The pricing of deals on offer to people looking to take out a new mortgage has already leaped, and may have some way further to go.