What a sky-high interest rate means for your house price

0
11

This would have put a brake on house prices, but until recently, record low mortgage rates meant that houses were still exceptionally cheap to buy. Now buyers are no longer shielded from reality. Purchasing power evaporates.

Paul Cheshire, a former government adviser and professor emeritus at the London School of Economics and Political Science, said the market was the most exposed to continued declining prices since the early 1990s and predicted a national decline of at least 10%.

ALSO READ  Ashleigh Buhai in tears after first major in play-off drama to win Women's Open

“The last time the housing market looked this bad was in 1989. Then the hairs on the back of my neck said real trouble was coming. My instinct right now is that under no circumstances would I borrow a lot of money to buy a house,” he said.

The specter of forced sellers

Just as buyers’ demand plummets, existing homeowners may suddenly find their mortgages unaffordable if they have variable interest rates or need to refinance. Andrew Wishart, of Capital Economics, said, “If mortgage payments as a percentage of median income hit the high 40, it usually means trouble.”

ALSO READ  Nichelle Nichols, Lt. Uhura on 'Star Trek', passed away at 89

Restrictions on lending and affordability criteria in the wake of the financial crisis have meant that the UK property market has been given better safeguards.

But higher rates could coincide with a sharp slowdown in the economy. There are widespread predictions of a recession, which in turn will lead to rising unemployment.

“That would lead to some borrowers going into arrears and increasing repossessions, even if they have a significant equity stake in the house,” said Mr. Wishart.

ALSO READ  Eight Easy Ways to Save Water in a Garden Hose Ban

LEAVE A REPLY

Please enter your comment!
Please enter your name here