Record slump in mortgages on market prices as interest rates rise

New figures from respected analysts Moneyfacts show that there were just 2661 mortgage yesterday (Weds) a drop of 935 in one day alone.

It is the highest daily fall in 11 years of its records, and is more than double the previous record fall of 462 on April 1, 2020 at the start of the Covid lockdown.

Meanwhile the interest rate of an average two-year fixed rate mortgage has soared from 2.34% in December to 4.81% yesterday.

It comes as leading economists warned prices could plunge by as much as 15% amid fears of further interest rates continue to rise.

Analysts have warned that higher interest rates, rising inflation and the risk of recession could lead to house prices falling by between 10% and 15%.

It comes as it emerged that hundreds of mortgage deals have vanished from the market as a fall in the value of the value of the pound led to forecast of higher interest rates.

Lenders including Clydesdale Bank and the Scottish Building Society have said they are pulling and tweaking deals.

The pound plunged against the dollar on Monday after Chancellor Kwasi Kwarteng pledged more tax cuts, on top of Friday's mini-budget when he announced the biggest tax cuts for 50 years.

The Bank of England said on Monday it would "not hesitate" to hike interest rates after the pound hit record lows.

And sterling remains low, slumping as much as 1% to around $1.06 yesterday while the dollar has hit a fresh 20-year high. That is only just above the last week's low of $1.03.

Some experts think Bank of England base rates could rise from 2.25% to 6% next year, as it battles against high inflation - currently 10.1%.

With rising base rates come higher home loan costs and an expected dip in demand for houses.

Capital Economics and Credit Suisse have also estimated that an interest rate rise from its current level of 2.25% to six per cent could see house prices plummet by between 10 and 15% .

Credit Suisse is warning that house prices could "easily collapse by ten to 15%" if borrowing costs continue to rise.

Andrew Garthwaite at Credit Suisse said: "The 8% decline in sterling since August 1 should add a further 1.3% to near-term inflation.

"On current swap rates, the average mortgage will be 6.3%. House prices could easily fall 10% to 15%."

Andrew Wishart, senior property economist at Capital Economics, also warned: "The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable.

“Were bank rates to rise from 2.25% now to 6.1% in June 2023 as is currently priced in, quoted mortgage rates might rise from 3.6pc last month to about 6.6pc, a level last reached in 2008.

"At the current level of house prices, an increase in mortgage rates to 6.6% would cause the cost of repayments on a new mortgage to rise to their highest level since 1990."

Ray Boulger, mortgage broker at John Charcol, has predicted a 10% fall in UK house prices next year.

He said: "We can expect to see a significant fall in house prices, perhaps 10% next year.

"Whilst at the moment I don’t think we’re going to see many more forced sellers… it’s certainly going to have an effect on people’s ability to buy."

He said the biggest issue for lenders was the “uncertainty” of knowing what the cost is going to be for the funds they need to buy to lend.

According to Deutsche Bank, the UK’s borrowing costs for 10-year government bonds or gilts have risen by the most in a five-day period since 1976 – the year Britain wentto the IMF for a bailout.

Mr Boulger said: “We’ve seen a huge rise in gilt yields over the last two or three days, an increase of over 1 per cent,” he said.

“That’s the fundamental cost that lenders have to pay, or dictates the cost lenders have to pay, to borrow money. And they just don’t know where that’s going to go and it makes it very difficult to price their mortgages.

“Because people have gotten used to really low mortgage rates for the last 10 years, I think the consequences are actually going to be very significant."

And Karen Noye, a mortgage expert at Quilter, said: “Rates of six per cent could prove disastrous for the property market as people won’t be able to afford mortgage payments if they have overstretched themselves.

“This could cause a wave of properties to come to market just when demand is drying up.”

UK interest rates were increased to 2.25% last week - the seventh time in a row the Bank of England has raised rates in an attempt to get control over rising prices.

Interest rates have been rising since last December as inflation has soared to its worst level in four decades.