House price warning as analysts predict home values could fall by 15%

FILE PHOTO: British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit Berkeley Modular, in Northfleet, Kent, Britain, September 23, 2022. REUTERS/Dylan Martinez/Pool//File Photo

HOUSE price could “easily” fall by 15% if interest rates continue to rise and hurt demand.

The news comes after the Bank of England warned that it could raise interest rates to 6% next year.

Chancellor Kwasi Kwarteng – pictured with Liz Truss at Berkeley Modular in Kent – last night tried to reassure Tory MPs and City chiefs

Homeowners face having to find thousands of pounds extra a year to pay their mortgage

Interest rates are heading towards six per cent next year

Around 365 products have been pulled from the market from lenders

The move will be triggered by the sharp fall in the value of the pound after it hit its lowest level against the dollar since 1971 on Monday.

The Bank of England is already warning of a 1.5 per cent rise to interest rates by November.

The move will put pressure on mortgage lenders to raise interest rates to levels not seen since the 2008 financial crisis.

And house prices could “easily collapse by ten to 15%% if borrowing costs continue to rise, according to Credit Suisse.

“Were Bank Rate to rise from 2.25% now to 6.1% in June 2023 as is currently priced in, quoted mortgage rates might rise from 3.6pc last month to about 6.6pc, a level last reached in 2008,” Andrew Wishart at Capital Economics said.

Homeowners will have to fork out thousands of pounds extra a year to pay their mortgage — and many will struggle to find a new deal.

Andrew said: “At the current level of house prices, an increase in mortgage rates to 6.6pc would cause the cost of repayments on a new mortgage to rise to their highest level since 1990.”

Andrew Garthwaite at Credit Suisse said: “The 8% decline in sterling since August 1 should add a further 1.3% to near-term inflation.

“On current swap rates, the average mortgage will be 6.3%. House prices could easily fall 10% to 15%.”

The projected affect of rising interest rates on property prices has forced the Bank of England to return to its pre-Covid stress test on lenders.

The Bank will stress test UK banks to see how they will cope if house prices were to fall by 31% in 2023.

Eight participating banks and building societies will be assessed including Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest Group, Santander UK, Standard Chartered and Virgin Money UK.

Together they account for around 75% of lending to the UK real economy.

At the same time, the number of mortgage deals available is being slashed by lenders.

Around 365 products have been pulled from the market in the past two days by high street banks including HSBC, Santander, Skipton, Halifax and Virgin Money.

The chaos follows last week’s mini Budget, in which Chancellor Kwasi Kwarteng cut taxes by £45billion, funded by government borrowing.

That spooked the markets and led to a chain reaction which now looks certain to sharply force up interest rates. The Bank of England raised interest rates by 0.50% week to 2.25%.

But there is now an expectation governor Andrew Bailey will be forced to go much further.

While more than three quarters of home mortgages are on fixed tariffs, around 1.8million of those loans are due to expire within the next year, according to UK Finance.

For a homeowner with a £200,000 two-year fixed mortgage, their £800 monthly interest payment will rocket to £1,103 if interest rates rise to 3.25 per cent — as expected by the end of this year — meaning an extra £3,156 a year, according to AJ Bell.

Nation’s financial resilience under threat

But if interest rates rise to six per cent, as the Bank of England has requested high street banks to model, this will jump to £1,408 a month — an extra £7,296 a year.

Sir Charlie Bean, the Bank of England’s former deputy governor, said it was time to take big action fast or the UK could turn into a “basket case” like Greece or Italy.

He said the Bank may need to raise interest rates by as much as one per cent before its November meeting amid a “material risk” of another slide lower for the Pound.

Sterling slumped to a historic $1.03 low following the Chancellor’s massive tax cuts and was trading at $1.06 yesterday. It has fallen 21 per cent so far this year.

Samuel Tombs, at Pantheon Economics, said the interest rate rise would be “simply unaffordable” for many. Analysts said the pressure on household income from an expected hike in interest rates was simply the Government “swapping one cost of living crisis for another”.

Myron Jobson, of Interactive Investor, said: “Two weeks ago rising energy bills dominated the headlines, now it’s concern over mortgage repayments. The long-term financial resilience of the nation is under threat.”

Karen Noye, a mortgage expert at Quilter, said: “Rates of six per cent could prove disastrous for the property market as people won’t be able to afford mortgage payments if they have overstretched themselves.

“This could cause a wave of properties to come to market just when demand is drying up.”


MUM Lydia Joseph was so worried about how she would afford her mortgage with spiralling interest rates she paid a £12,400 early repayment charge to switch it.

Lydia, 34, below with family, of Faversham, Kent, had a three-year fixed mortgage at 2.08 per cent due to end in April next year.

Lydia Joseph – pictured with family – worked out it would be better to switch to a deal at 2.7 per cent with the same lender

She worked out it would be better to switch to a deal at 2.7 per cent with the same lender even paying a charge.

Lydia would have to pay £2,632 a month if rates hit 6 per cent. She pays £1,853 on her deal, £779 less.


SECRETARY Andreea Gherasium and husband Sebastian worry about what will happen when their four-year fixed rate deal at four per cent ends next year.

If rates hit six per cent Andreea, 30, and lorry driver Sebastian, 26, of Rutland, will see their £336 monthly payments soar when they lock into a new deal.

Andreea Gherasium and Sebastian – pictured with kids – are struggling to get by and worry of what may happen when their four-year fixed rate mortgage ends

The couple and kids Marcus, ten, and Lucas, nine, above, are struggling to get by.

They have even cancelled swimming lessons. Andreea said: “I’m really concerned that when our fixed deal ends it will mean cutting back on our food shop.”