House prices set to plummet as mortgage rates soar -
mortgage rates

House prices set to plummet as mortgage rates soar

Experts have warned that property prices in the UK could plummet over the next two years on the back of soaring mortgage rates. Analysts have forecast a downturn that could see house prices plunge by 7% in that time. This comes amid speculation that the Bank of England will increase rates to 3.75% by spring 2023.

The Office for National Statistics has already reported a drop in annual growth. With living costs rocketing and interest rates continuing to rise, the downturn is likely to be significant. According to economists, areas such as London and the South East are likely to be affected more than most. House prices in these areas could slump by 12% over the next two years.

A Capital Economics report stated: “Areas where house prices are highest relative to incomes are most vulnerable. London and the South East are likely to see the largest falls and the North and Wales the smallest.”

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House prices

Gloomy forecast following record highs

Since the onset of the Covid-19 pandemic, house prices have hit record highs due to a property market boom. However, there are signs of a cooling of the market, and the forecast over 2023 and 2024 looks bleak.

According to data from Halifax, July saw property prices fall for the first time in over a year. With rising living costs set to put increased pressure on household budgets, this winter is being described as a ‘crunch point’.

Since December last year, there has been a spate of interest rate increases, with five rate hikes of 0.25% followed by the latest one of 0.5%. These moves have increased the base rate to 1.75%, and further rate hikes are inevitable. Inflation continues to soar, and the Bank of England has stated it will take aggressive action to try and bring it back under control.

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House prices

So far, the property market has been propped up by the high demand for housing. However, the higher cost of living and increased base rate will dampen this demand, and as a result of this, house prices will be affected. The threat of a recession is also taking its toll on consumer confidence, which will then lead to plummeting demand. As a result, it is thought that next year will see activity in the housing market fall to its lowest level in more than ten years.

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Mixed news for first-time buyers

First-time buyers usually benefit from falling house prices, as they have no existing property to sell, so benefit from lower prices without having to deal with the falling value of their existing homes.

However, in the current situation, even first-time buyers will be hard-pressed to reap the rewards of lower house prices, according to officials. This is because soaring bills will impact their ability to save a deposit and the affordability of bills if they buy their first home. In addition, rising interest rates will affect the amount they can borrow.