Real estate slowdown seen as wake-up call for sector amid mortgage crisis

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he UK housing market is set to fall dramatically according to experts who believe new data is a wake-up call for the property sector.

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

While prices rose another 9.5% in September, the slowdown in August’s 10% rise has baffled commentators.

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

With interest rates rising in a bid to dampen decades-high levels of inflation and potential further hikes to counter the fall in the pound, there are fears that mortgage rates could soon become unaffordable, triggering a crisis in the housing market.

“A rate hike to 6% would likely have significant consequences for the housing market, with a deep recession and inflation eventually falling well below the Bank of England’s 2% target and potentially into negative territory,” Beck added.

Andrew Montlake, managing director of mortgage broker Coreco, said the level of uncertainty in the markets was “out of the ordinary”.

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

Montlake expected potential buyers to target smaller homes because of “the sharp rise in mortgage rates” or “forget their plans altogether.”

“Prices will no doubt come under real pressure now, but the significant declines that some have predicted are unrealistic given the lack of supply,” he added.

The mortgage market has been in a frenzy this week, with lenders completing more than 2,300 deals – the equivalent of 40% of the market – fearing they will set rates too low on their products if the Bank of England adopts another rate raised. ascend.

Myron Jobson, senior personal finance analyst at Interactive Investor, said fluctuations in money markets had “taken their toll on the business models that lenders use to price mortgages”.

“While the emergency bond-buying program launched by the Bank of England on Wednesday could see the return of fixed-rate mortgages that were hastily withdrawn, affordability pressure is likely to continue to escalate. worsen, with the cost of living expected to rise and the specter of rising interest rates expected to drive up mortgage costs.

To counter this, however, new data shows that the UK economy actually grew by 0.2% between April and June, according to the Office for National Statistics, an upward revision from the initial estimate of the organism which suggested a contraction of 0.1%.

And the pound has regained ground against the dollar, now sitting at $1.12 from the low of $1.07 it hit following Chancellor Kwasi Kwarteng’s mini budget.