The UK is at risk of falling property prices

The biggest damage from British Prime Minister Kwasi Kwarteng’s much-criticized small budget announcement could be the UK’s housing market.

As the Bank of England threatened to raise interest rates and bond yields surged in response to Kwarteng’s massive tax cut and government borrowing plan, UK homeowners and homebuyers fell into disarray. panic – both at their future costs. mortgages, tied to interest rates, and news that lenders are pulling out of deals and withdrawing products from the market.

The turmoil in the UK is superficially similar to the rapid slowdown in the US housing market, where prices reduced in 77% metro areabut while the prospect of finding an affordable mortgage looks similarly bleak in the United States, where mortgage interest rate close to 7%– The UK is facing a bigger threat than it is now as millions of people will need to mortgage their properties over the next two years.

That’s because mortgages with maturities of 2 to 5 years – which return to variable market rates after their fixed term ends – are so popular in the UK Today, more than 2 million households British families are facing a sharp increase in their mortgage costs in the not-too-distant future — significantly increasing the likelihood of property price drops, as many homeowners may not be able to afford what is likely to be. much higher.

David Hollingworth, director at mortgage brokerage L&C, told Luck that, while most short-term fixed-mortgage borrowers can be protected from this increase in the near term, they will be looking at a much higher interest rate environment as their fixed term ends. end.

“People are going to be nervous about ending their contracts,” Hollingworth said.

More and more likely housing collapse

As the market swings from minute to minute, many lenders have been unable to keep up with fluctuating prices — and have halted their lending.

HSBC and Santander are among the UK’s top lenders suspending new deals on mortgages as they fix their prices, while other banks such as Nationwide and Halifax have raised rates yield or recall of products. “This is the first time we’ve seen a major product pullout and revaluation in the mainstream market since the crisis,” said Ray Boulger, an analyst at mortgage broker John Charcol. global finance.

Once lending resumes, the 2 million borrowers looking to mortgage their homes between now and the end of 2024, according to the Bank of England, will have to, according to Bank of England figures. face a much higher interest rate environment.

Combine this mortgage cliff with the worst cost of living crisis the UK has seen in decades, as well as the looming recession threat, a collapse of the economy. housing market is becoming a very real possibility. “For the past few months we have known this is a possibility but it looks like a worst case scenario. We’re moving towards that perspective now,” Neal Hudson, a housing market analyst and founder of the consulting firm BuiltPlace, told. FT.

“I’m still not 100% sure the market will crash… but that’s the main assumption for now,” he added.

How far will house prices fall?

House prices have risen steadily over the past decade from an average of £168,400 in 2012 to £283,500 today, thanks to historically low interest rates and reduced down payment requirements.

But when those days come to an abrupt end, rising mortgage rates will exacerbate Britain’s cost-of-living crisis and inequality. from the outset, they will obviously have less flexibility in their monthly budgets,” says Hollingworth Fortunee.

The downturn in the gold plating market and the risk of interest rates rising to 6% next summer, “make it very difficult to know where to value mortgage products,” Boulger told BBC Radio 4’s Today programme. He predicts a 10% drop in UK house prices next year and notes that “while right now, I don’t think we’ll see any more forced sellers… that certainly will. influence people’s ability to buy”,

Analysts at Credit Suisse are warning that higher interest rates, rising inflation and the risk of a recession could drive home prices down between 10% and 15%.

Ian Mulheirn, chief economist at the Tony Blair Institute for Global Change, goes even further. Speaking to BBC Newsnight, Mulheirn said “with the rapid rise in interest rates that we are about to see, it will be very difficult for buyers to afford existing home prices. We can then look at a drop of anywhere about a third in real terms. “

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