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UK house prices could plunge 15% because of soaring mortgage rates

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UK house prices could plunge by up to 15% if the country goes ahead with its policies. economic gambling of tax cuts.

credit suisse

UK house prices could “easily” fall between 10% and 15% over the next 18 months if the Bank of England raises rates aggressively to curb inflation, he said Tuesday. rice field.

“As all rate hikes permeate, mortgage debt affordability will deteriorate to the same level as before. [global financial crisis] Peak,” wrote a research analyst at Credit Suisse.

UK Finance Minister Kwasi Kwarten announced last week: Biggest tax cut in 50 years and a massive increase in government borrowing.The news sent the value of the pound plummeting lowest record while the US dollar and British government bond prices crash.

Some analysts expect the Bank of England to raise interest rates to 6% next year from the current 2.25% to support a weakened currency. The central bank announced emergency bond purchases on Wednesday in an attempt to restore calm in the market.

The impact could make it harder for people to get mortgage approvals and delay purchases by prospective buyers. Declining demand leads to falling prices.

Several lenders have withdrawn hundreds of mortgage products since Friday in response to the turmoil.

Similarly, Capital Economics, which forecasts a 10% to 15% drop in home prices, warned that the recession could be “devastating.”

“With the resulting decline in purchasing power, a significant decline in house prices is inevitable,” said Andrew Wishart, senior economist at Capital Economics, in a research note on Tuesday.

Wishart said a 6% interest rate would reduce the maximum mortgage loan a typical first-time buyer with an annual income of £55,000 ($59,000) could get by 26% to £203,000 ($217,000). rice field.

“The pandemic-induced surge in UK house prices and higher mortgage rates means that the rest of 2022 and into 2023 will take a heavy toll on household purchasing power,” said executive director of property provider Zoopra. said Richard Donnell. Wednesday he is CNN Business.

Given that 36% of household wealth is held in real estate, this is a bigger problem for the economy., Data from the National Bureau of Statistics show.

millions mortgage borrower We are prepared for a significant increase in monthly payments as a result of higher than expected interest rates which were already expected to rise in the coming months.

At a base rate of 6%, a refinancer of a £146,000 ($157,000) 20-year fixed-rate mortgage — the average outstanding mortgage balance in the UK — would make an extra payment of £309 ($333) per month. You can expect it. Laura Suter, AJ Bell’s head of personal finance, told CNN Business on Tuesday.

That’s £108 ($116) more than investment firms had estimated before the market crash this week.

About 1.8 million people will refinance next year, according to the Resolution Foundation.

Samuel Toombs, chief economist at Pantheon Macroeconomics, said in a report on Tuesday that a sharp rise in monthly repayments could lead to a wave of mortgage defaults, impacting the country’s banking sector. rice field.

“In the same way that house prices are likely to fall, mortgage delinquencies and defaults will increase, putting a heavy strain on bank balance sheets,” Toombs said.

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