Mortgage rates have peaked and house prices will drop by 10%, says Oxford Economics

Mortgage rates have already peaked, but house prices will drop 10% next year, Oxford Economics says, as it warns house prices could rise as much as 37%.

  • Economist Andrew Goodwin predicts that barter rates will fall next year
  • This will lower mortgage rates although they will remain at around 5%
  • And the underlying rate will peak at 4% and not 5-6% as markets expect, he says
  • Home prices are overpriced by a third based on current mortgage costs

Mortgage rates may have already peaked, according to Oxford Economics chief economist Andrew Goodwin, with the average two-year fixed rate at 6.43 per cent this week.

Based on the cost of mortgages, home prices are overvalued by as much as 37 percent, according to an analysis by Oxford Economics.

However, Goodwin says he doesn’t expect real estate prices to see a drastic correction if interest rates stay the same.

“Our new projections will show a 10 percent drop in house prices year on year,” he said. “About 13 percent peak-to-trough over the next two years and compared to a measure of mortgage affordability.”

Oxford Economics expects mortgage rates to peak in the fourth quarter of this year before falling in 2023.

Oxford Economics expects mortgage rates to peak in the fourth quarter of this year before falling in 2023.

In the company’s latest research briefing, it stresses the impact of the upcoming advisor financial statement at the end of the month and the Bank of England’s actions.

Whether mortgage rates continue to rise in 2023 will depend on the behavior of the government and the Bank of England.

“The advisor intends to present his medium-term financial plan on October 31, which will provide an important signal as to whether he has taken market concerns into account,” Goodwin says.

This prediction is due in part to the difference in thought between the economic analytics firm and the broader market outlook.

The market currently expects the Bank of England to increase its base rate by as much as 5 or 6 per cent, while Goodwin says Oxford Economics thinks it will peak at 4 per cent.

“I think in this case we find it hard to believe we’re going to be close to six,” he says.

That should lower swap rates and mortgage rates next year, but they will still be much more expensive than they were six months ago.

The reason we think the BoE will not go to 5 or 6 per cent is a decision based on the extent of the inflation problem apparent and the extent the BoE is prepared to fight it.

We believe that the problem of inflation is less severe than the market would suggest and less long-term. I’m not sure the Bank of England is prepared to handle the kind of recession you’ll see at 6 per cent.

Mortgage rates have skyrocketed over the past year, hampering how much homeowners can borrow for the same monthly payments

Oxford Economics expects mortgage rates to peak in the fourth quarter of 2022, but remain high in 2023.

And despite the current chaos in the mortgage market – with rapidly rising interest rates causing concern it could lead to a full-blown crisis if families can’t make their payments – Goodwin is somewhat relieved.

Average fixed mortgage rates across all loans-to-values ​​have risen significantly since the advisory micro-budget on Sept. 23.

At the beginning of last month, a two-year fixed rate on a £200,000 mortgage would have cost you £1,082 a month or £12,984 a year. This has increased by £260 a month to £1,342 with the rate now at 6.43 per cent.

However, Goodwin argues that while higher rates will hit hard on those who need a new mortgage, the effect will not be the same for everyone.

If you set a price that is about to expire, you are in the wrong place at the wrong time. But there are also a lot of people who aren’t in this situation who are isolated.

“We are at the more optimistic end of the forecast because we believe that a large share of the reforms will give us sufficient insulation.

“We don’t think we’re going to see a significant increase in lead sales all at once because the impact is going to be ripple, and it’s going to be slow.”

A new report from Oxford Economics, released today, says house prices are inflated to the highest level since 2000 when the company first began tracking data.

In 2007, home prices were overvalued by 25 percent, the second highest level of the past two decades according to the data. Today, that number is much higher than 37 percent.

Earlier in the week, analysts at Capital Economics said home prices will drop about 12 percent by mid-2024 as a result of a sharp increase in mortgage rates.

Homes are more expensive relative to earnings than they've ever been, as the Nationwide Home Price Chart shows

Homes are more expensive relative to earnings than they’ve ever been, as the Nationwide Home Price Chart shows

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


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