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House prices could fall by up to 30 per cent in the worst case scenario, a mortgage lender has warned, as homeowners face spiking interest rates and persistent inflation.
MPs have been alerted to the fact that the UK faces economic uncertainty over the next year as house prices could crater by almost a third.
Chris Rhodes, chief finance officer at Nationwide Building Society, told a Treasury Committee hearing yesterday: ‘My best case is slowly increasing house prices and my worst case is potentially a 30% per cent fall, but those are the two extremes which are tail probabilities.’
Mr Rhodes said that the ‘weighted average’ is around 8 per cent to 10 per cent but insisted that it was ‘not a forecast’.
Earlier today, homeowners were hit with the largest increase in interest rates in more than 30 years, potentially adding hundreds of pounds to mortgage payments.
The Bank of England hiked the rate by 0.75 percentage points to 3 per cent at lunchtime, the highest it has been since the Global Financial Crisis in 2008.
It is the highest single increase for 33 years as central bankers look to get a grip on runaway inflation which is battering British households.
Nationwide had revealed this week that house prices fell by 0.9 per cent month on month for the first time in 15 months in October and the sharpest drop since the start of the pandemic
House prices could fall by up to 30 per cent in the worst case scenario, a mortgage lender has warned
Nationwide had revealed this week that house prices fell by 0.9 per cent month on month for the first time in 15 months in October and the sharpest drop since the start of the pandemic.
Annual house price growth also slowed sharply to 7.2 per cent in October, from 9.5 per cent in September.
Across the UK, the average house price in October was £268,282 – and the housing market looks set to slow in the months ahead.
This followed the then chancellor Kwasi Kwarteng’s tax-cutting splurge on September 23 that prompted lenders to withdraw hundreds of deals and replace them with more expensive offers.
Nationwide Chief Finance Officer Chris Rhodes (pictured) said that the ‘weighted average’ is around 8 per cent to 10 per cent but insisted that it was ‘not a forecast’
Earlier today, homeowners were hit with the largest increase in interest rates in more than 30 years as predicted, potentially adding hundreds of pounds to mortgage payments
Tracking the base rate: Those on tracker mortgages could see their payments increase by more than £500 per year
Robert Gardner, Nationwide’s chief economist, said the market has ‘undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates’.
He added: ‘Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.’
Ray Boulger, of John Charcol, an independent mortgage broker, believes that house prices will fall ‘peak to trough’ by ten to 15 per cent.
But both Mr Boulger and Mr Rhodes were hesitant in confirming these forecasts due to the significant uncertainty in the market.
As the nation recovers from economic turmoil, homeowners are being hit with rising interest rates and tougher checks from lenders – which are in turn driving property prices down.
The Bank of England met market expectations as it hiked the rate by 0.75 percentage points to 3 per cent at lunchtime, potentially adding hundreds of pounds to unfixed monthly mortgage payments. Pictured: Bank of England Governor, Andrew Bailey
Homeowners are not able to borrow as much as before due to a combination of rising energy bills and the all-round cost-of-living crisis.
‘People’s ability to borrow an amount of money that they could have borrowed even three months ago is clearly reduced, and one of the key drivers of house prices is what people can borrow,’ Mr Boulder said.
Shadow Chancellor Rachel Reeves believes that families with ‘already stretched budgets’ now face even higher mortgage payments.
Ms Reeves, who is due to speak at the Anthropy conference at the Eden Project in Cornwall, will say: ‘Rising interest rates will mean families with already stretched budgets will be hit by higher mortgage payments. It will mean higher financing costs for businesses. And it will mean profound implications for growth.’
Shadow Chancellor Rachel Reeves (pictured) believes that families with ‘already stretched budgets’ now face even higher mortgage payments
Joanna Elson, head of debt charity Money Advice Trust called for a campaign to encourage people struggling with mortgage payments to seek help.
Reacting to the Nationwide’s figures, Jonathan Hopper, chief executive of Garrington Property Finders, said: ‘Sellers who just months ago could take their pick of offers are now biting off the hand of a strong, proceedable buyer – even those asking for a price reduction.’
Meanwhile Samuel Tombs, chief UK economist at Pantheon Macroeconomics, discussing the fall in Nationwide’s index in October said it ‘provides the strongest signal yet that house prices will buckle in the face of the surge in mortgage rates and the squeeze on real disposable incomes’.
Tom Bill, head of UK residential research at estate agent Knight Frank, said: ‘Demand will come under more pressure next year as a growing number of people come to the end of fixed-rate deals and mortgage offers made earlier this year when rates were lower begin to lapse.
‘Government stability will help underpin transactions but we are witnessing a fundamental shift in rates take place after 13 years of ultra-low borrowing costs that will lead to price declines.
‘Low unemployment, tight supply and well-capitalised lenders mean we should avoid the kind of double-digit falls seen during the financial crisis.’
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