Warning house prices could fall by 15% as banks hike mortgage rates

Veteran mortgage broker says he has not seen market move in such a way since 2008 financial crisis

House prices could fall by as much as 15 per cent as mortgage providers hike interest rates (Getty Images/iStockphoto)

House prices could fall by as much 15 per cent as mortgage providers hike interest rates to levels not seen since the financial crisis, experts have warned.

As analysts began predicting the Bank of England’s base rate, currently standing at 2.25 per cent, would have to rise to as high as 6 per cent next year, some lenders began pulling their fixed-rate mortgage deals amid the uncertainty.

The Bank’s governor Andrew Bailey said it was ready to hike interest rates “by as much as needed” to rein in inflation amid the market turmoil triggered when chancellor Kwasi Kwarteng unveiled a massive £45bn of tax cuts in his mini-Budget on Friday.

Analysts at Credit Suisse have warned the combination of higher interest rates, inflation and the risk of recession could lead to house prices falling by up to 15 per cent, while veteran mortgage broker Ray Boulger predicted a 10 per cent drop.

Mr Boulger said he had not seen the market move in this way since the 2008 financial crisis.

The senior mortgage technical manager at John Charcol told BBC Radio 4’s Today programme: “What was different then was lenders had a lack of funds so in a way that was even worse because we saw lenders withdrawing rates and not offering new deals for high loan to values.”

He added: “Because people have got used to really low mortgage rates for the last 10 years, I think the consequences are actually going to be very significant. I think we can expect to see a significant fall in house prices; I’m suggesting perhaps around 10 per cent next year.”

Mr Boulger said a lot of people thinking of buying would likely rethink their plans, with some buying at a lower level and others not buying at all.

Andrew Wishart, a senior property analyst at Capital Economics, said a significant drop in house prices was “inevitable” as rising interest rates push up mortgage rates and reduce the size of loans lenders can offer.

HSBC UK said it had removed its "new business" residential and buy-to-let products from sale, but all its products and rates for existing customers remain available.

Meanwhile, Britain’s biggest building society, Nationwide, said it would increase its two, three, five and 10-year fixed-rates by between 0.90 and 1.20 percentage points from Wednesday.

Existing members looking to switch to a new deal or borrow more will see lower increases of between 0.55 and 0.85 percentage points, while tracker rates will increase by 0.50 percentage points, in line with the recent increase in the Bank of England base rate.

The IMF urged the government to ‘re-evaluate’ its package of tax cuts as the pound plummeted to a record low (AP)

Nationwide said in a statement that in recent days, swap rates, which mortgage pricing is based on, have increased at unprecedented levels in response to the current economic conditions as the market factors in further predicted rises in the Bank of England base rate.

Sir Keir Starmer has promised to make owning a home a reality for another 1.5 million households, branding Labour "the party of home ownership in Britain today".

The Labour leader said he wanted to see 70 per cent of households own their own homes and appeared to back more housebuilding in his speech to the Labour Party conference on Tuesday.

Sir Keir revealed his own variable-rate mortgage payments had gone up by “a few hundred pounds” a month.

He told LBC: “So many people with mortgages will be really worried by what’s going on because they know what this means for their budgets – prices are going up.

“We all look at the graph and we see the pound falling, but it’s not an abstract graph. This is reflected in people’s mortgages, etc. And people are very, very worried this morning.”

The International Monetary Fund (IMF) last night hit out at Liz Truss and Mr Kwarteng’s tax cuts for the rich, warning that “large and untargeted fiscal packages” would “likely increase inequality” in Britain.

It took the rare step of urging the government to “re-evaluate” its package of tax cuts as the pound plummeted to a record low.