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‘Storm clouds gather’ over housing market as mortgage rates rise

“Storm clouds are in sight” on the housing market, say surveyors, with rising mortgage rates expected to push home prices lower in the coming year.

The market lost momentum in September and inquiries from new buyers fell for the fifth straight month, the Royal Institution of Chartered Surveyors (Rics) said.

A limited supply of properties for sale is still supporting modest price increases, but this appears to be ending as the pace of growth slows significantly, the latest Rics report suggests.

The interest rate outlook and uncertainty about the broader economy are taking their toll, with the impact of rising mortgage rates expected to outweigh any boost that stamp duty cuts in the recent mini-budget could give buyers.

According to, the average rate for two-year fixed-rate mortgages on the market this Wednesday was 6.46%, while the average rate for five-year fixed-rate mortgages was 6.32%. Both average rates are the highest since 2008.

New sell orders continued to fall, Rics said, and inventories remained at historic lows.

Estate agents now have just 34 apartments on their books on average and the pipeline seems to have continued to deteriorate, with the number of new market valuations falling overall.

Sales volumes have been falling for five consecutive months and are at their lowest level since May 2020, in the early stages of the coronavirus pandemic.

Real estate professionals’ sales expectations for the next three months and 12 months remain negative.

A net balance of 18% of real estate professionals expect house prices to fall rather than rise over the next 12 months.

They cited expected further significant hikes in mortgage rates as a factor, Rics said.

In the rental market, tenant demand has increased along with a drop in landlord orders, Rics added.

As a result, short-term expectations point to further strong rental growth over the coming three months.

Rics Chief Economist Simon Rubinsohn said: “The turbulence in the mortgage markets in recent weeks has exacerbated rising levels of economic uncertainty stemming from higher energy bills and the broader cost-of-living crisis and has shifted the scale in the housing market.

“Although the overall price balance remains in positive territory for now, storm clouds are visible in the deterioration in near-term expectations for both pricing and sales. In the longer term, the picture of the Rics survey has clearly shifted into the negative.

“How this plays out in terms of hard data will inevitably depend in part on the state of the mortgage market once it settles down, but it’s difficult not to imagine further pressure on the housing sector as the economy adjusts to higher interest rates and the adjusts tight labor market is beginning to reverse.

“For now, mortgage arrears and possessions remain at historic lows, but they will inevitably move higher over the next year as pressure on homeowners mounts.

“However, with lenders being much more cautious this cycle and high-value-to-value mortgages making up a much smaller proportion of the loan book than in the past, this should help limit the negative impact on the market. ”

Tom Bill, Head of UK Residential Research at Knight Frank, said: “An era of double-digit price growth has already come to an end, but the mini-budget seems to be accelerating that process.

“Sentiment was damaged as lenders struggled to set interest rates, marking the end of a 13-year period of extremely low borrowing costs. While we expect downward pressure on prices, thanks to record-low unemployment and well-capitalized lenders, we do not anticipate the magnitude of the declines seen during the global financial crisis.”

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