House prices could fall by up to 15% if interest rates keep rising, experts have warned.
Analysts think house prices could drop because would-be homebuyers struggle to afford property due to higher interest rates, rising inflation and the risk of recession.
Experts think the Bank of England could raise base rate from 2.25% to 6% next year, as the central bank battles against high inflation - currently 10.1%.
A top Bank of England official warned millions of borrowers to brace themselves for a “significant” rate hike.
Huw Pill, the Bank’s chief economist, also admitted: “We don’t know what the future holds. Not for the next few weeks, not for the next few days – or even perhaps not for the next few hours.”
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Base rate is factored in to the cost of financial deals like mortgages.
If base rate goes up, tracker mortgage prices go up almost straight away, as do new fixed rate mortgage costs.
Another worry for lenders is the rapidly falling value of gilts - which affect fixed-rate mortgage prices.
Lenders are withdrawing or tweaking some of their deals to reprice them, but also to avoid lending to customers who may not be able to pay their loans back if costs rise.
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 consultants Capital Economics, said: “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.”
He also predicted the hit to affordability would trigger a bigger fall in house prices than the 7% it had forecast.
If Bank of England base rate does hit 6% next year, the average two-year fixed rate mortgage would see monthly repayments jump to £1,490, from £863 now.
The list of lenders pulling or tweaking deals so far is:
- Halifax
- Santander
- Virgin Money
- Skipton Building Society
- Clydesdale Bank
- Scottish Building Society
- Leek United Building Society
- Nottingham Building Society
- Bank of Ireland
- Paragon Bank
- Darlington Building Society
More are likely to follow.
The Skipton Building Society said it had withdrawn its offers for new customers, in order to “reprice” given the market movement in recent days.
Virgin Money said: “Given market conditions we have temporarily withdrawn Virgin Money mortgage products for new business customers.
“Existing applications already submitted will be processed as normal and we’ll continue to offer our product transfer range for existing customers.
“We expect to launch a new product range later this week.”
Halifax also said it is withdrawing all mortgages that come with a fee.
