Home prices could fall 12% by 2024 as median mortgage rates hit 6%

Home prices could fall 12% by 2024, analysts warn, as average mortgage rates hit 6% and limit what buyers can afford.

  • Capital Economics forecasts a 12% drop in prices with rates at current levels
  • Two-year and five-year fixed rates rose to more than 6% last week
  • Others say prices could fall as much as 15% next year after peaking in August.

House prices will fall about 12 percent by mid-2024 as a result of sharply rising mortgage rates, according to analysts at Capital Economics.

The warning comes after offers for average fixed-rate mortgages rose to more than 6 percent last week, as lenders continued to raise rates in response to the rapidly rising cost of borrowing.

On Thursday of last week (Oct. 6), the two-year average fixed rate rose to 6.11 percent and the five-year average fixed rate stood at 6.02 percent, according to Moneyfacts.

A rise in rates Experts predict that home prices will fall by more than 12%, as buyers become discouraged by rising mortgage costs.

On the first day of the month, both average rates were comfortably below 6 percent at 5.43 percent and 5.23 percent, respectively.

Capital Economics said that as mortgages become more expensive, the impact on home prices would be more severe.

Andrew Wishart, senior property economist at the research firm, said: ‘Two-thirds of buyers use a mortgage.

“So for most buyers, the amount they can spend on a home is decided by the size of their deposit plus the size of the mortgage they can get.

‘The jump in mortgage rates, from 1.5 percent last fall to 6 percent now, will reduce the size of the mortgage that buyers can afford and lenders are willing to offer.

“We believe that the immediate purchasing power impact of higher interest rates makes a significant drop in home prices inevitable.”

Wishart added that mortgage affordability was a reliable indicator of downward pressure on home prices, because higher mortgage rates drive many buyers out of the market until home prices drop sufficiently.

The monthly cost of a 20 percent deposit mortgage on an average-priced home has typically absorbed about 40 percent of a household’s median full-time disposable income, he said. However, at current home price levels and with rates around 6 percent, the cost of repayments would rise to about 60 percent of that income.

Higher Cost – As interest rates have risen, the affordability of mortgages has decreased as mortgages take up a larger percentage of income.

Higher Cost – As interest rates have risen, the affordability of mortgages has decreased as mortgages take up a larger percentage of income.

Last week, the latest Halifax House Price Index revealed that prices fell 0.1 percent in September compared with a 0.3 percent rise in August, leading some experts to suggest that the market had begun to change.

The median UK house price is now £293,835, slightly below the previous month’s record of £293,992.

The latest Nationwide index, released in late September, said that while year-over-year home price growth totaled 9.5%, typical home prices were flat between August and September, the first time this happens since July 2021.

Rate increases: Fixed mortgage rates have been rising since the Bank of England started raising its base rate in late 2021, but recent economic turmoil has accelerated the increases.

Raymond Boulger, senior technical manager for mortgages at broker John Charcol, told This is Money: “I expect Nationwide’s annual rate, currently 9.5 percent, to turn negative in March or April of next year and now I think prices, which peaked in August, decrease by about 15 percent.’

Others have also predicted that house prices will fall next year.

Ashley Thomas, director of mortgage broker Magni Finance, said: “At the lower end [of the market]I think there is a great possibility that prices will fall, since they will be the most affected by the significant increase in mortgage rates.

‘At the high end, I think it will probably stay level. A few reasons for this, the main one being that demand is still very strong for properties above £1 million, there is still limited supply.’

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic..

Banks and building societies continue to lend and mortgages are still being offered and applications accepted.

However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a house?

Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for