The number of people who are unable to pay their mortgages is projected to reach a 15-year high, prompting fresh fears of a housing downturn.
According to the Royal Institute of Chartered Surveyors (RICS), house sales in September reached their lowest levels since the height of the pandemic.
Increasing mortgage rates will cause a decline in home values this year, the report predicted.
The Bank of England predicted on Wednesday that the number of homeowners failing to pay their mortgages would increase dramatically in 2019.
According to RICS, new home buyer inquiries decreased in September, marking the fifth consecutive month of decline.
It stated that there were still fewer houses for sale, which contributed to a slight increase in property prices, but warned that this trend was expected to end.
Although property prices were still rising, RICS chief economist Simon Rubinsohn noted that “storm clouds” were gathering over both pricing and sales.
“As the economy adjusts to rising interest rates and the tight labor market begins to loosen,” he said, “it is difficult not to foresee greater pressure on the housing sector.”
“For the time being, mortgage arrears and possessions remain at historic lows, but they will certainly rise over the next year as homeowner pressure increases,” he warned.
However, because lenders have been much more careful throughout this cycle, with high loan-to-value mortgages comprising a significantly smaller portion of the lending book than in the past, this should mitigate the market’s negative impact.
The Bank of England’s quarterly survey of banks and building societies regarding credit conditions revealed a decline in mortgage lending between July and September, with a further decline anticipated for the final three months of the year. In contrast, loans for refinancing increased during the third quarter and are expected to increase between October and December.
Mortgage rates, which had been climbing since the Bank of England began raising interest rates in December, soared after the government’s September mini-budget alarmed investors.
The promise of massive, unfunded tax cuts has led to the belief that the Federal Reserve will have to hike interest rates more aggressively than previously anticipated, and mortgage lenders are pricing loans accordingly.
According to Moneyfacts, the average two-year fixed mortgage rate was 6.46 percent on Thursday, the highest level since 2008. The average five-year fixed rate was close to a 14-year high at 6.28 percent.
“Increasing stress”
The Bank of England stated that if interest rates increased as high as the market anticipated, many households would struggle, including both homeowners and renters.
It is estimated that approximately 1.7% of UK households, or 475,000, are in a position where they are more likely to encounter repayment issues. It is defined as spending more than 70 percent of their take-home earnings on mortgage or rent and necessities.
However, it anticipates that this proportion will increase to 2.8%, or around 800,000 homes, by the end of the following year.
The Financial Policy Committee of the Bank of England stated in a report released on Wednesday that increases in the cost of living and interest rates will increase pressure on household budgets and make families more susceptible to shocks.
In the absence of considerable spending reductions, “some may find it difficult to repay loans,” the report added.
However, the report also indicated that households were better equipped than in the past to deal with financial hardship, as they had less debt relative to their wages.
The proportion of individuals with high loan-to-value mortgages is also considerably lower.
“This lessens the likelihood that they would default on their debt, and banks are now compelled to respond with flexibility,” the Bank added.
It is anticipated that over 1.7 million of the nation’s 11 million mortgage holders may need to refinance their loans in the coming year, incurring significantly higher interest rates.
