Rate hike could see house prices fall by a fifth

City economists have warned that house prices could fall by more than 20% if the Bank of England is forced to hike interest rates steeply. Mortgage affordability – the ratio of a home purchase loan to the size of the borrower’s income – may have to drop from 3.5 to 2.5 if lenders start charging 6% on mortgages. Andrew Wishart, senior property economist at consultancy Capital Economics, said: “If that happened overnight, it would imply a 21% fall in house prices.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that if the Bank did hike rates to the market’s expectations of 6%, it “would lead to a sharp rise in mortgage defaults,” adding that a sudden wave of borrowers being unable to service their mortgage debts could “set in motion a banking crisis.” 

City AM (27/09/2022)