The housing market is facing a slowdown, with warnings that the number of people struggling to pay their mortgages could hit a 15-year high. House sales in September fell to their lowest level since the height of the pandemic, according to the Royal Institution of Chartered Surveyors (RICS). Rising mortgage rates are expected to drive house prices down this year, RICS warned.
New buyer inquiries fell for the fifth consecutive month in September. While a shortage of properties for sale has kept prices rising slightly, RICS chief economist Simon Rubinsohn said “storm clouds” were gathering. “It is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates,” he said, adding that mortgage arrears and possessions, though currently low, will inevitably rise.
The Bank of England’s quarterly credit conditions survey found mortgage lending fell in the third quarter and is expected to fall further in the final three months of the year. Remortgaging lending, however, grew and is forecast to increase. Mortgage rates have surged since the government’s mini-budget in September, with the average two-year fixed rate hitting 6.46% on Thursday, the highest since 2008, according to Moneyfacts.
The Bank warned that rising interest rates and the cost of living will increase pressure on household finances. It estimates that around 475,000 households currently spend more than 70% of take-home pay on mortgage or rent and essentials, a figure it expects to rise to 800,000 by the end of next year. However, the Bank noted households are in a stronger position than in the past, with lower debt relative to incomes and a smaller share of high loan-to-value mortgages, which should limit defaults.
