Home Price Collapse Fears: Interest Rate Warning From ‘Unsaleable’ Homes | United Kingdom | News

Property prices: Expert discusses ‘interesting’ price differences

Buyers who have overstretched their finances and taken advantage of ultra-cheap mortgages are vulnerable to rising costs. Those who bought and are backed by cheap debt could also fall victim to falling prices as their homes swing into negative equity.

People whose mortgage debt exceeds the value of their property will find it difficult to move or remortgage.

The Financial Conduct Authority found in 2013 that up to 630,000 households had negative equity after the financial crash. Between 2007 and 2009, prices fell by 18%.

A boom that saw prices increase by 20% per year in the late 1980s led to a slump in the 1990s when the market fell from 1990 to 1994.

In the mid-1990s, more than one in 10 mortgage borrowers had more debt than their property was worth.

Millions of homeowners face negative equity if their home’s value drops (Picture: PA)

The average house price across Britain has skyrocketed

The average house price across Britain has skyrocketed (Picture: PA)

Today’s homebuyers have stretched like never before to get their foot on the property ladder.

Prices have recently hit a string of record highs despite tougher economic conditions caused by the Covid pandemic and the cost of living crisis.

The Office for National Statistics now reports prices at more than nine times average earnings.

Those who could afford to buy benefited from lower interest rates. The base rate is now 1% after a series of Bank of England hikes.

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a view of houses in Dover, Kent

A view of houses in Dover, Kent (Picture: PA)

Builders lay blocks at a building site near Bristol

Builders lay blocks at a building site near Bristol (Picture: PA)

The Bank has raised base interest rates to curb soaring inflation, but that means mortgage costs will inevitably rise.

According to broker Trussle, the average homeowner with a £224,000 mortgage can expect to pay an extra £1,000 in interest a year.

A large deposit should provide some owners with an equity cushion that should protect them from a market crash.

However, a significant number do not have such a pot to carry them through.

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The 20 best hotspots for first-time buyers (Picture: Express)

One in six buyers at the end of 2021 had a deposit worth less than 10% of their home, according to the Bank of England.

With over 70,000 mortgages approved each month, this means there are over 11,600 small deposit buyers, or about 135,000 per year.

The typical interest rate on a two-year fixed mortgage for a buyer with a 25% deposit nearly doubled from 1.2% in September to just over 2.3% in April.

People with a 10% deposit have seen the rate rise from less than 2% at the start of the year to 2.6% now.

New borrowers are particularly affected.

A couple of women surveying property prices in an estate agents window, in Kentish Town, London

Two women survey house prices in an estate agents window, in Kentish Town, London (Picture: PA)

Some analysts warn that if prices fall to the extent seen following the financial crash or in the early 1990s, then those with 95% mortgages risk falling into negative equity.

Andrew Wishart of Capital Economics told the Telegraph: “If you’re just in negative equity then you have more hope that prices will rise again at some point.

“When you get declines of more than 20%, that negative equity becomes a hard sell. People sell the house and give up the mortgage.”

Investigators say there is “little evidence” that the pace of house price growth is losing much momentum.

The Royal Institution of Chartered Surveyors (Rics) said a limited supply of available properties and steady growth in demand remain the main drivers of property prices.

Rics’ survey of real estate professionals last month found that a net balance of 10% signaled an increase in inquiries from new buyers rather than a decline.

This was the eighth consecutive month in which the survey revealed a positive net balance.

When it comes to the supply of available homes, professionals are slightly more likely to report a decline in new property listings compared to those reporting an increase in new listings in April.

Overall, this indicated a stable trend in the number of new homes coming on the market.

The number of agreed sales also remained broadly stable in April, after increasing in the previous two months. Sales are expected to remain stable for the coming year.

Surveyors also expect prices to continue to rise. For next year, 62% anticipate price increases, although this figure is down from 78% in the February survey.

Rics economist Tarrant Parsons said: “Despite growing macroeconomic headwinds in the form of cost of living pressures and higher interest rates, the UK housing market continues to see mildly positive trends. in requests from new buyers.

“For now at least, while there is a great deal of caution about the future economic landscape, it appears that the limited supply available in the market, coupled with steady growth in demand, remains the main driver of prices for real estate.

“As such, there is little evidence at this stage that house price inflation is losing momentum, while expectations for the next 12 months have only moderated slightly from recent highs. .”

Leslie M. Gill