Mortgage chaos is 'going to hurt' as prices soar and home prices stall

Owners are struggling to pay home loans, which are growing more expensive

There are now fewer mortgages available and the ones that survived the cull generally have higher rates. PA

Chaos in the UK housing market could lead to mortgages rising by thousands of pounds as products are withdrawn and prices fall, analysts warned on Friday.

HSBC, one of the country's biggest mortgage providers, said this was “going to hurt”.

Already, there are fewer mortgage products available and the ones that survived the cull generally have higher rates.

The UK has been hit by investor panic over the last week with markets and sterling sliding after a mini-budget announcement that was meant to tackle rampant inflation.

Emergency measures were introduced by Bank of England to take the sting out of the subsequent attack on the economy but it has reached into the housing market with a vengeance.

“The latest UK market turmoil and surging rate expectations are set to pile the pressure on the 11 million UK households with mortgages,” said Chris Hare, senior economist at HSBC Global Research.

“Even before the latest market volatility, mortgage rates had surged above 4 per cent, implying a jump in typical annual mortgage costs of around £3,500.

“And the rise in swap rates in recent days makes mortgage rates of 5.5 per cent an imminent possibility. That would see typical annual costs rise by a whopping £5,000.

“The hit is coming. We estimate an average income squeeze for all mortgagors of £700 this year and £1,300 next year.”

The current chaos comes on top of a longer-term drop off in house price rises, with Nationwide Building Society recording a zero per cent rise in house prices for August — the first month with no rise recorded rise since July last year.

“There have been further signs of a slowdown in the market over the past month, with the number of mortgages approved for house purchase remaining below pre-pandemic levels and surveyors reporting a decline in new buyer inquiries,” said Nationwide's chief economist Robert Gardner.

“Headwinds are growing stronger suggesting the market will slow further in the months ahead.

“High inflation is exerting significant pressure on household budgets, with consumer confidence declining to all-time lows. Housing affordability is becoming more stretched.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “The staggering jump in mortgage rates finally is starting to weigh on buyer demand.

“The increase in the stamp duty land tax threshold to £250,000, from £125,000, will do little to offset affordability issues caused by the coming surge in mortgage rates.”

Estate agent Ian Wyn-Jones said sales were collapsing because lenders were pulling mortgage deals.

“People want to put their houses up for sale because they literally can't afford the mortgages. It's a horrible situation,” he said.

“In the coming weeks we have people coming on because they want to sell now because their mortgage rate has changed and they want to get out”. He added that people are “getting cash in because they don't know what will happen in the future.”

In August, the number of homebuyer mortgage approvals increased sharply, the Bank of England said on Friday, but they also warned it was people trying to lock in deals before expected rates rises kicked in.

About 74,300 approvals were recorded in August, an increase from 63,700 in July and the highest since January.

“Mortgage approvals have continued to climb skyward in recent months, despite mortgage rates increasing in line with numerous base rate hikes by the Bank of England,” said Revolution Brokers director Almas Uddin.

“This has been spurred by a sense of urgency from the nation’s homebuyers, who are keen to secure what remain fairly reasonable rates in anticipation of further increases to come this year.”

On Wednesday Moneyfacts.co.uk, a financial services organisation, said 935 fewer residential mortgage products were on the market on Wednesday then on Tuesday — the highest fall on its records going back to November 2011.

Henry Synge, an estate agent in central London, said the collapsing pound was giving international buyers a discount.

“There's been a couple of US enquiries in the last week — a couple of speculators getting in touch, looking to park a bit of cash somewhere while it's reasonable. Actual offers will probably be further behind.”