Analysts warn that home prices could fall 12% by 2024, as mortgage rates average 6% and limit what buyers can afford.
- Capital Economics expects a 12% decline in prices with rates at current levels
- The two-year and five-year fixed interest rates rose to more than 6% last week
- Others say prices could fall by as much as 15% next year, after peaking in August
Home prices will drop about 12 percent by mid-2024 as a result of the sharp increase in mortgage rates, according to analysts at Capital Economics.
The warning comes after average fixed-rate mortgage deals rose more than 6 percent last week, as lenders continued to raise interest rates in response to the rapidly rising cost of borrowing.
On Thursday last week (October 6), the two-year average fixation rate rose to 6.11 percent and the five-year average fixation leveled at 6.02 percent, according to Moneyfacts.
Experts predict house prices will drop by more than 12% as buyers may be put off by increased mortgage costs.
On the first of the month, the average of the two rates was less than 6 percent at 5.43 percent and 5.23 percent, respectively.
Capital Economics said that as the cost of mortgages rises, the impact on home prices will become more severe.
Andrew Wishart, chief real estate economist at the research firm, said: “Two-thirds of buyers use mortgages.
Therefore, for most buyers, the amount they can spend on a home is determined by the size of their deposit as well as the size of the mortgage they can take out.
The jump in mortgage rates, from 1.5 percent last fall to 6 percent now, will reduce the amount of mortgage buyers can afford and that lenders are willing to offer.
“We believe that the immediate hit to purchasing power from higher interest rates makes a significant drop in house prices inevitable.”
Wishart added that mortgage affordability was a reliable predictor of downward pressure on home prices, because higher mortgage rates cause many buyers to exit the market until home prices fall enough.
He said the monthly cost of a 20 percent mortgage on a median-priced home typically commands about 40 percent of the average full-time household’s disposable income. However, at current house price levels and rates of about 6 percent, the cost of repayment would rise to about 60 percent of that income.
Higher cost: As interest rates rise, mortgage affordability has been lowered, as mortgages command a higher percentage of income.
The latest Halifax House Price Index last week revealed that prices fell 0.1 per cent in September compared to a 0.3 per cent rise in August, leading some experts to suggest the market is beginning to turn around.
The median home price in the UK is now £293,835, down slightly from the previous month’s high of £293,992.
The latest nationwide index, published at the end of September, said that while year-over-year house price growth was 9.5 percent, typical property prices were unchanged between August and September — the first time this has happened since July 2021.
“I would expect the Nationwide YoY index, which is currently 9.5 percent, to turn negative in March or April next year,” said Raymond Bolger, chief technical director of mortgages at This is Money broker John Charcoll. which peaked in August, will change. by about 15 percent.
Others have also predicted that housing prices will fall in the next year.
It’s on the lower end,” said Ashley Thomas, director of mortgage broker Magni Finance [of the market]I think there is a strong possibility of lower rates as these will be the ones most affected by the sharp rise in mortgage rates.
“At the higher end, I think it’s likely to stay the same. There are a couple of reasons for that, the main one being that demand is still very strong for properties over £1m, and supply is still limited.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..
Banks and building societies are still lending and mortgages are still being accepted with applications accepted.
However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.
This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.
What if I need to re-travel?
Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.
Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.
Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I’m buying a house?
Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.
Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.
You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.
Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check out the best fixed rate mortgages you can apply for