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Energy bills and interest rate hikes to destroy the housing market

The glory days for the UK’s housing market are about to come to an end, with buyers being forced to “drink a lethal cocktail” of high bills and interest rate increases. According to the Center for Economics and Business Research, house prices will fall by four percent in 2023.

But even if house prices are predicted to drop later in 2022 and throughout next year, it’s unlikely to spark a buying frenzy as affordability takes a dip thanks to rising interest rates.

If history repeats itself, a rise in interest rates is usually the precursor to falling house prices, estate agents are barely optimistic about what’s about to come.

Simon Gerrard, Managing Director of Martyn Gerrard Estate Agents and Abbeytown Ltd, said: “The most important word in the housing market is affordability and, what these figures don’t show, is it’s falling for the overwhelming majority of people.

“Buyers are being forced to drink a lethal cocktail of spiraling household bills and interest rate hikes which, put simply, reduces what they can afford.”

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Mr Gerrard says ongoing issues with the market also play into the upcoming drop, with a chronic issue with supply chains having pushed up prices over the last two years, it still may not be enough to stop the price rises from trailing off.

He continued: “The ongoing under-supply of housing is the only thing that’s underpinning prices – but if interest rates reach anywhere near seven percent, as widely predicted under a Liz Truss government, everything changes.

“The fact that housing policy isn’t higher up the agenda of both Prime Ministerial candidates is borderline criminal.

“While it may not be an immediate vote winner, the reform of our antiquated planning regulation would at least start to get Britain building the new homes we so desperately need.”

And it’s not just bad news for prospective homebuyers. Existing mortgage holders will have their finances severely put to the test in 2023.

The latest market analysis by Revolution Brokers has revealed that the average monthly cost of repaying a mortgage has climbed by 56 percent in the last decade.

But a huge jump is on the way for homeowners with mortgages to pay, as costs are expected to increase a further eight percent forecast by the end of the year.

Revolution Brokers Almas Uddin said: “It’s certainly looking like a tough couple of months ahead with house price growth showing no signs of slowing, while mortgage rates are also set to spike by quite some margin when compared to the increases seen over the last decade.

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“For those looking to get a foot on the ladder, it means their monthly mortgage repayments will now be significantly higher.

“While those existing homeowners on a variable rate will also see their household finances squeezed that much further.”

Sellers are also having a difficult time as well. Analysis by HBB Solutions has found the pandemic market boom of 2020 and 2021 is causing sellers to be over enthusiastic about how much their home will sell for.

While the last two years have certainly seen homes go for much more than initially expected, now home sellers who are opting to drop their asking price are doing so by 19.8 percent on average.

Managing Director of HBB Solutions, Chris Hodgkinson, said: “What we’re also almost certainly seeing is the first signs of a cooling market, as the economic pressure of rising inflation and the increasing costs associated with mortgage rates, in particular, start to dent home buyer confidence and the sums they are willing to pay.”

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