Soaring mortgage rates will cause house prices to fall by 10pc over the next two years, one of Britain’s most high-profile estate agents has warned.
Soaring mortgage rates will cause house prices to fall by 10pc over the next two years, one of Britain’s most high-profile estate agents has warned.
Tom Bill, of the estate agents, predicted a 10pc fall in property values across 2023 and 2024.
Previously, Knight Frank had forecast 1pc house price growth next year and 2pc growth in 2024. Mr Bill said price drops would begin in the coming months.
At the start of the pandemic, there were widespread forecasts of house price falls which never materialised. But the outlook today is very different because swap rates – the rates used by banks to price mortgages alongside the central Bank Rate – have surged, Mr Bill said.
“The five-year swap rate was less than 1pc back then. The swap rate is now up at around 5pc,” Mr Bill said.
This means rising costs will be passed on quickly to buyers and homeowners, he added. “Any savings from the stamp duty cuts will be eclipsed by higher mortgage rates,” Mr Bill said.
The average rate on a two-years fix hit 6.07pc on Wednesday, according to Moneyfacts, an analyst. This has tripled since July 2020 and was the first time the rate has surpassed 6pc since November 2008.
Karl Thompson, of the Centre for Economics and Business Research, a think tank, said: “Higher rates will immediately worsen affordability for the roughly fifth of mortgage holders on variable deals, the near two million post-lockdown mortgage holders whose two-year fixes expire next year, as well as prospective first-time buyers.”
Homeowners on variable rates and those coming to the end of fixed-rate deals face enormous jumps in their mortgage costs, just as they are shouldering the blow of soaring energy bills and the biggest drop in disposable incomes on record.
A separate report warned mortgage repossessions will increase sevenfold as households are hammered by soaring rates, according to a forecast from Capital Economics.
Andrew Wishart, of the consultancy, said the number of households in mortgage arrears worth more than 2.5pc of their outstanding balance will more than double in two years.
Between April and June this year, 80,150 borrowers were in significant arrears. This number will surge to 175,000 by the end of 2024 – close to the 216,400 recorded in 2009, he said.
As arrears rise, the number of repossessions will jump from 1,000 this spring to 7,000 in the last three months of 2025.
