House prices in the UK are likely to fall by at least 10% next year as mortgage providers pull deals and raise interest payments to levels not seen since before the 2008 financial crisis, property experts have predicted.
Nearly 300 mortgage deals have been withdrawn by banks and building societies, after a fall in the pound fuelled forecasts of a jump in the Bank of England base rate to nearly 6%, with those offers remaining on the market entailing huge borrowing costs for potential buyers, reducing how much they can pay for properties.
chart – Annual UK house price growth slowed to 10% in August
“I think we can expect to see a significant fall in house prices, perhaps around 10% next year,” said Ray Boulger, senior mortgage technical manager at John Charcol, told BBC Radio 4’s Today programme on Wednesday.
“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.”
Analysts at Credit Suisse have warned that higher interest rates, inflation and the risk of recession could lead to house prices falling by between 10% and 15% next year.
chart – The average price of a UK property in July 2022 was £292,118
Andrew Wishart, senior property economist at Capital Economics, also predicted a house price slump of 10%-15%. “The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer,” Wishart said. “The resulting drop in buying power makes a significant drop in house prices inevitable.”
HSBC and Santander are the biggest lenders to have pulled mortgage products, with Bank of Ireland, Clydesdale Bank, Post Office Money and building societies including Monmouthshire also among the brands to have withdrawn products, as lenders struggle to price loans.
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UK mortgage market turmoil: what does it mean for your deal?Read more
Nationwide became the first big lender to increase fixed-rate deals, with its two-year rate rising to 5.59%. Three months ago, it offered a comparable mortgage at 2.54%.
The increase is equivalent to a family with a £500,000 mortgage spending an extra £881 a month on repayments.
chart – Mortgage payments in London make up more than 50% of first-time buyers’ take home pay
Other lenders are expected to follow suit as analysts predict that the Bank of England could raise the base rate as high as 6% next year.
“At the moment we aren’t going to see many forced sellers because most people have got fixed [mortgage] rates and therefore it is going to take time for these costs to filter through,” said Boulger, who added that he has not seen the mortgage market in such a state since the financial crisis of 2008.
“But certainly it is going to have a big impact on the ability to buy. If we’d had this sort of increase over a five-year period people could have got used to it.”
On Tuesday, there were 3,596 residential mortgage deals available, 284 fewer than before the sharp fall in the value of the pound on Monday morning, according to the data firm Moneyfacts. At the end of last year, would-be borrowers had 5,315 products to choose from.
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