UK house prices could fall 20% amid mortgage ‘carnage’, experts warn

The turmoil in the UK financial markets has led analysts to predict house prices could fall by as much as 20% amid the ‘carnage’ in the mortgage sector and warnings of a big hike in borrowing costs.

Despite the increasing pressure on the cost of living, the real estate market has been defying the naysayers for months. That could finally change after the mess that Kwasi Kwarteng’s mini-budget has wreaked.

Ray Boulger, senior mortgage technical manager at home loan broker John Charcol, predicted a decline of “maybe around 10%” over the next year. Analysts like Credit Suisse said it could be anywhere from 10% to 15%. Others claimed it could be even more serious.

Graham Cox, director of Self Employed Mortgage Hub, said: “Unless we’re very lucky and inflation comes down much faster than predicted, I see no outcome other than a sizeable fall in house prices – possibly over 20% in the next two up to three years. I’ve been accused of being a naysayer, but using simple math and common sense, how can real estate prices not fall? A lack of housing supply doesn’t help an iota when mortgage rates are anywhere between 5% and 7%.” He claimed that “the decade-long housing bubble is about to burst… It’s a buyer’s market now.”


According to most of the data released, home prices have surprised many by continuing to rise: they typically rose 0.4% and 0.8%, respectively, in August, according to Halifax and Nationwide. Nationwide said the annual rate of UK house price growth is still (only) in the double digits: 10%, up from 11% in July.

However, one of the elements keeping the market buoyant is that demand has outstripped supply – in other words, a shortage of homes for sale has pushed prices further up. A lot depends on what happens to the offering in the future and whether the people currently considering buying it will scale back their ambitions or throw in the towel and abandon their plans for the time being.

Ian Hewett, founder of Bearded Broker in Ashford, Kent, said the apparent lack of stock from his local estate agents was “appalling”, adding: “Yes, mortgage rates have gone up dramatically along with all the household bills so affordability is falling challenging, but the extreme lack of inventory is likely to prevent a crash even if demand falls sharply.”

But homeowners have been warned to brace for a “significant” rate hike from the Bank of England, which will mean much more expensive mortgages for the 2.2million people currently on an adjustable rate. Prices for deals being offered to people looking to get a new mortgage have already skyrocketed and could still have a long way to go.


UK economists at Pantheon Macroeconomics said the average two-year fixed rate, where the buyer borrows 75% of the property’s value, has nearly tripled this year, from 1.34% to 3.64% in August. They added: “It will rise to at least 6% by the end of the year if markets are right on interest rates, and possibly further as lenders start pricing in a growing risk of distressed borrowers and defaulters.”

We could probably get close to that. On Wednesday, Nationwide raised some of its new fixed rates by as much as 1.2 percentage points, and even its most competitive new two-year fixed rates are now above 5.5%. As recently as 13 months ago, a borrower could buy a new fixed rate in the market for less than 1%. Halifax offered one at 0.83%.

According to Pantheon Macroeconomics, the portion of average disposable income of new buyers that is absorbed by monthly mortgage payments could rise to 32% early next year from 22% in early 2022 Power of future payments; many others will fail lender affordability tests,” they said.

According to Nationwide, mortgage payments for potential first-time buyers in London typically eat up more than 50% of net pay (for the UK as a whole, it was just over 30%), even earlier this summer.


The turmoil in the mortgage market – with available interest rates gone an hour later – is causing major headaches for buyers and brokers.

Data provider Moneyfacts said on Wednesday that banks and building societies pulled a record 935 mortgage products overnight on Tuesday – more than double the previous record of 462 set in April 2020 at the start of the Covid lockdowns.

Paul Neal of Missing Element Mortgage Services said: “It’s total carnage out there at the moment. The bikes come from the mortgage market.”

While David Hollingworth of broker L&C Mortgages said things were moving at incredible speed, he added: “This is not 2008 when lenders had no liquidity or funding. These are lenders struggling with extremely volatile funding costs.”

The mortgage rate changes “are all about new customers,” he added, saying there was no evidence of lender panic over existing mortgage offers or applications that had already started their journey. “If you have a mortgage offer, it should be for a specific period of time.

But you may be more vulnerable if you only have substantive consent, as opposed to a formal request, as that is a broad indicator of consent.”

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