Property slowdown seen as red flag for sector amid mortgage crisis


he UK housing market is on the cusp of a dramatic drop according to experts who believe new data is a red flag for the property sector.

Fresh figures from Nationwide show that the monthly pace of house price growth slowed for the first time since July 2021.

While prices still rose by 9.5 per cent in September, the cooling off from August’s 10 per cent rise has unnerved commentators.

“September’s slowdown is likely to be the precursor to a more sizeable weakening in house price growth and housing market activity, reflecting the recent rise in market interest rate expectations and mortgage rates,” Martin Beck, chief economic adviser to the EY Item Club said.

With interest rates on the rise in a bid to mitigate decades-high levels of inflation, and potential further hikes to counteract the plunging pound, there are fears that mortgage rates could soon become unaffordable, sparking a crisis in the housing market.

“Raising rates to 6 per cent would likely prompt significant consequences for the housing market, a deep recession and inflation eventually falling well below the Bank of England’s 2 per cent target and potentially into negative territory,” Beck added.

Andrew Montlake, managing director at mortgage broker Coreco, said the level of uncertainty in markets was “off the charts”.

“The brief surge in sentiment caused by the stamp duty announcement in Friday’s mini Budget has been wiped out by the tsunami of market volatility since,” he said.

Montlake expected prospective buyers to target smaller homes due to “sharply increased mortgage rates” or to “shelve their plans altogether”.

“Prices will without doubt come under real pressure now, but the sizeable drops some have predicted are unrealistic given the lack of supply,” he added.

The mortgage market has been in a frenzy this week, with lenders pulling more than 2,300 deals – equivalent to 40 per cent of the market – over fears that they could be setting rates on their products too low if the Bank of England enacts another sharp rate rise.

Myron Jobson, senior personal finance analyst at Interactive Investor, said the gyrations in money markets had “wreaked havoc on the business models lenders use to price mortgages”.

“While the emergency bond buying programme launched by the Bank of England on Wednesday could see the return of fixed rate mortgage deals that were hastily withdrawn, the affordability squeeze is still set to become more acute, with the cost of living set to intensify and the spectre of higher interest rates set to push up mortgage costs.”

To counteract this, though, new data shows that the UK economy actually grew by 0.2 per cent between April-June, according to the Office for National Statistics, an upward revision from the body’s initial estimate that suggested a 0.1 per cent contraction.

And the pound has regained some ground against the dollar, now sitting at $1.12 compared to the lows of $1.07 that it hit in the wake of Chancellor Kwasi Kwarteng’s mini Budget.

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