Mail Online / Thisismoney house prices

ended 28. April 2022

A journalist at TIM/Mail Online is writing a story on house prices/rising mortgage rates this morning and is looking for a couple of quick comments. The story is based on a Capital Economics report which says: 

Our new, higher, interest rate forecasts mean that we now expect house prices to fall marginally in 2023 and 2024. While there are risks on both sides, our base case is that prices drop by 5% overall, reversing a fifth of the surge in house prices since the pandemic began.

The reasons, it says, are rising inflation and increasing mortgage rates: 

Lenders have been slow to pass on rising interest rates so far, so we expect a sharp rise in mortgage rates in the months ahead. For example, some banks are offering 60% LTV mortgages at 2.2%, in line with the 2-year interest swap rate. If Bank Rate were to rise as expected by financial markets, lenders would make no profit on such loans so it is inevitable that rates will rise further. 

We expect the average rate on new mortgages to rise from 1.8% in Q1 to 3.3% by end-2022 and to a peak of 3.6% in 2023 as lenders rebuild their margins. That would be the sharpest rise in mortgage rates since 1990, consistent with an abrupt slowdown in house price inflation.

Journalist is keen to get views on whether house prices are likely to fall by this much, and what this will mean for home buyers/sellers? Could taking some of the heat out of the market be welcome for some - even if mortgages are more expensive? Deadline is midday.

6 responses from the Newspage community

Star Quote
"I think the house price falls could be faster and steeper than Capital Economics are predicting. We're almost certainly heading for a recession by the autumn, potentially a deep one if the war in Ukraine continues. Property prices actually do need to fall, they're hugely overpriced, and the younger generation are priced out of getting on the property ladder. It's disgusting, frankly. The housing market is like a crack addict, hopelessly dependent on perpetual cheap credit and ever-increasing prices. Slowly but surely, it's wrecking the economy, as we'll only start to realise now the cost of living crisis is hitting home. Of course, what we don't want is prices falling sharply, as it could make the outlook even worse. But I fear it may be too late for that."
Star Quote
"I think the assumption that rates will rise sharply and therefore house prices fall, is by no means set in stone. The Bank of England will take this into account when deciding on further rate rises and will not want any shocks to the housing market. Also, inflation often pushes up asset prices (like property) as investors seek to get their cash into assets, to protect themselves from the effects of inflation."
"With demand outstripping supply, it seems that prices are likely to continue to rise. We have had a number of clients looking to buy a property where there have been multiple offers. It seems that the higher the value, the fewer properties are available, in particular above £1m."
"My main concern with a drop in house prices by up to 5% is for first-time buyers who have taken a 95% loan to value mortgage in recent years. This could mean many high loan-to-value borrowers could find themselves at risk of being in negative equity. That said, a cooling of the property market is welcomed from a buyer's prospective as along with inflation, and interest rate rises, this is likely to help with the supply and demand issue the market has been experiencing. This could make properties more affordable for first-time buyers who are vital to keep the property market moving."
"The prediction on interest rates indicates a significant rise this year and may mean that borrowers coming to the end of an existing fixed product will see rates nearly doubling. This adds to the increasing cost of living. It is a bleak prediction. However, an interest rate environment of around 4% would still be low based upon historic data, but with most residential mortgages now on capital and interest terms, the monthly costs will be much higher. If this does come to pass it could the final ingredient that takes the puff out of house price inflation and the reduction predicted may be conservative."
"Interest rates are certainly on an upwards march, but there is still a lot of competitive pressure in the mortgage market that is somewhat tempering that rise. How this will impact house prices is a harder one to call. The housing market is already defying logic by continuing to remain on fire despite the recent rate rises, so will more rises see this fire extinguished? I'm not sure. My best guess is that we will see a flattening of house prices, rather than a noticeable drop, as the huge undersupply of houses is likly to stop prices falling."