What will happen to house prices? As Bank of England orders lenders to explain how they’d cope if they fall by a third
THE plummeting pound and soaring interest rates could create a mortgage ticking time bomb crisis.
The value of the pound against the dollar collapsed to $1.03 yesterday, causing the Bank of England to say that it "won't hesitate to change interest rates".
Experts predict that interest rates could peak to 6% next year - and concerns have been sparked about how the chaos will hit homeowners.
When interest rates go up, so does the cost of borrowing, including loans, credit cards and mortgage repayments.
Budding buyers may put their dreams of buying, or moving up the ladder, on hold because of unaffordable rates.
It means borrowers are rushing to lock in fixed deals as early as possible to avoid future rate hikes.
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But major lenders have already pulled their fixed deals for new customers.
It's sparked concerns among experts that house prices could fall as buying a house becomes unaffordable for many.
We explain what could happen to house prices - and what it means for your money.
What could happen to house prices?
There is lots of data on what house price estimates currently stand at.
Latest data from the Land Registry shows that the average house price as of July 2022 stood at £292,118 - a rise of 2% compared to the previous month, and 15.5% up compared to last year.
Halifax said the average house price in August stood at £294,260 - just 0.4% higher than the month before.
While Rightmove said the average price of a property new to the market went up by £2,587 month-on-month in September, and now stands at £367,760.
It added that if interest rates continue to soar, first time buyers could see their average mortgage repayment jump from £1,057 to £1,114 a month.
In any case, you should seek professional advice from a mortgage broker.
What should first-time buyers do?
You'll need to look carefully at your budget to see if you can definitely afford taking on a mortgage now.
Major lenders have already started to pull fixed mortgage deals for new customers, including including Halifax, Virgin Money and Skipton Building Society.
It means that there will be less deals on the market to choose from - and less chance for you to shop around for the best one.
However, a drop in house prices as demand cools could spark good news for first time buyers, John Charcol mortgage technical manager Nick Mendes said.
"It will be welcome news to first time buyers who for the last year have seen property prices increase month on month for the past 2 years," he said.
"But with property prices increases over the last year and wages not keeping up with inflation and rates rises, many first time buyers could be holding back on any plans and wait to see how things settle before jumping into one of the largest commitments in a mortgage."
Rose Capital mortgage adviser Richard Campo said first-time buyers should seek professional advice about their options.
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"A good mortgage broker will outline all your options, so you can make an informed decision on what is best for you.
"In an environment where rates are being pulled daily, you need an expert in your corner that is working for you.”