Soaring interest rates are seeing house sales fall through after panic hit the property market earlier this week, according to one Welsh estate agent. Lenders pulled nearly 1,000 mortgage deals from the market - an unprecedented overnight drop - as analysts predicted a house price crash within months.
With interest rates expected to double next year, banks including HSBC and Santander suspended offers to new customers amid fears they would not be repaid, leaving home buyers in limbo. Meanwhile, property prices are expected to plummet as millions of existing owners try to sell up after no longer being able to afford their payments.
"I have never seen it like this," said Ian Wyn-Jones, an estate agent in north Wales whose had 20 sales fall through since the Government's mini-budget a week ago. "That’s 20 households who have had their life turned upside down in a matter of days."
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He told The Telegraph that some of the sales collapsed because lenders withdrew agreements in principle, a precursor in the application process which gives a buyer an idea of how much they can borrow, after they pulled mortgage deals from sale.
"To see lenders going back on a mortgage offer is a rare but really scary thing. We have also been contacted by people wanting to put their home on the market and downsize because they can’t afford the repayments anymore.
"These aren’t older couples who are moving into more manageable properties, it’s families who simply can’t afford their homes anymore," Wyn-Jones added.
A lender can withdraw a mortgage offer at any time before a sale’s completion, although it is rare and usually reserved for cases where there has been a significant change in circumstances or a legal problem has arisen. Banks are more likely to pull an agreement in principle, which is a less formal indication of how much a buyer can borrow.
Many estate agents have warned the market is at a “tipping point” right now, as higher rates squeeze borrower affordability and limit how much they can offer for a property. Research by property website Zoopla this week found buyers would have to cut offers by tens of thousands of pounds if mortgage rates rose to 6pc next year.
This in turn will hit property values, with economists forecasting house price falls of up to 15pc if rate predictions materialise. Mortgage brokers warned "down valuations" - where a lender’s surveyor values a home at less than the buyer has offered - have already begun.
Jamie Lennox, of broker Dimora Mortgages, said one lender had this week down valued a property by £40,000 – equivalent to 12pc of the proposed sale price. He said: "We may see more in the weeks to come. Clients are also becoming more concerned about a looming recession and the impact of potentially buying a house at the peak of the market."
If a lender values a property at less than a buyer has offered, the latter must pay the difference between the valuation and the agreed sales price in cash, or risk the purchase collapsing. As the housing market cools a growing number of sellers will suffer down valuations, experts have predicted.
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