The property market in Britain is paralyzed after interest rates rise (Getty)
The ability to buy homes has declined in United kingdom After lenders withdrew mortgage offers in response to the surge interest rates. The decline in real estate prices is expected to reduce the number of homes sold each year from 1.2 million to only 800,000. Also can put high rates The cost of repayment is at its highest level in three decades, which could expose millions of homeowners to huge financial losses.
House price crash
This news comes after a warning Bank of England It may raise interest rates to 6% next year, a warning that means lenders withdrew their fixed-rate mortgages on Tuesday, September 27. However, traders are betting that the Bank of England will raise the key rate to 5.9% by September next year, from 0.1% a year ago, driving up the costs of housing loans for nearly two million people.
More than three-quarters of mortgage loans are subject to fixed interest rates, but about 1.8 million of those loans are due to mature within the next year, according to data from British Finance, a trade association for the UK’s banking and financial services sector.
An expert has warned that UK house prices could collapse by as much as 40% over the next two years, the Daily Express reported yesterday.
On the other hand, the expectations of analysts at Credit Suisse Bank. Swiss credit Less pessimistic, they warned that the combination of high interest rates, inflation and the risk of recession could cause house prices to fall by 10-15%, and indicated that unemployment should rise to 6% to control wage growth and return inflation to its target level. However, unemployment is currently at a 42-year low, and wage growth is 3% higher than it would have to be to meet the BoE’s inflation target.
Ray Bolger, mortgage broker at mortgage advisory John Charcolm, predicts a 10% drop in UK house prices next year..
“We can expect a huge drop in house prices, maybe 10% next year,” Ray told BBC Radio 4’s Today programme..
It is known that the British currency has been in a downward spiral since mid-last Friday, after Kwasi Quarting, the Minister of Finance, announced his mini-budget that includes massive tax cuts. However, the British pound recovered from Monday’s record lows, rising 0.8% against the dollar to $1.07, but remained below the level it was trading at before the announcement of the mini-budget.
These conditions prompted mortgage providers to raise interest rates to levels not seen since the financial crisis, as economists warned that rising borrowing costs would lead to a sharp drop in home prices unless the government was able to control the situation.
Banks suspend mortgage deals
HSBC and Santander suspended new mortgage deals yesterday, The Times reported on Wednesday, and Nationwide became the first major bank to raise interest rates on fixed-rate deals, as it rose 2-year interest rate to 5.59%, and three months ago he offered a similar mortgage at 2.54%. The increase is equivalent to what a household with a £500,000 mortgage spends an additional £881 a month on repayment.
Other lenders are expected to follow suit, with the Bank of England expected to raise the benchmark interest rate to 6% next year.
This means homeowners will have to pay thousands of extra pounds a year to pay their mortgage and many will struggle to find a new deal.. Fixed mortgage rates have already doubled since last year and some are now over 6%.
“The rates of 6% could be catastrophic for the real estate market, as people will not be able to afford their mortgage payments if they have overburdened themselves,” says Karen Noy, a mortgage expert, who continues that this could cause a wave of real estate in The market is when demand is depleted.
According to the Office for National Statistics, the median home price in the UK was £292,000 in July 2022, which is £39,000 higher than this time last year..
Smaller lenders such as Kensington, Accord Mortgages and Hodge were among those who said they were withdrawing their bids on Tuesday. This followed a decision by Lloyds Banking Group, the UK’s largest mortgage provider, on Monday to halt some offerings, while Virgin Money UK plc temporarily stopped providing home loans to new customers.
In the context, mortgage brokers said that some loan deals may be withdrawn to the highest value entirely, due to concerns related to affordability and stability of the property market.
According to data compiled by the British Financial Information Corporation Moneyfacts Group PlcThe number of mortgage offers between Friday morning and Tuesday morning fell 9% to 3,596 from 3,961.
For his part, said Jeffrey Yu, chief strategist at Bank of New York Mellon Corp in London, that the state of the market remains opaque and it is not clear what will happen next. And if the Bank of England leaves interest rates unchanged for two or three weeks, lenders will feel more certain and more mortgage offers will return to the market, and he explained that if the pound falls again, there is a greater chance of a reaction by the Bank of England, which It will reduce affordability further.
For a homeowner with a two-year fixed mortgage of £200,000, the £800 monthly interest payments would rise to £1,103 if interest rates rise to 3.25%, as expected by the end of this year, experts say. That means an extra £3,156 per year. But if interest rates rise to 6%, the amount will jump to £1,408 a month, an additional £7,296 a year.