House prices are falling at their sharpest rate in 14 years, with borrowing costs set to rise further tomorrow.
Property prices have dropped 3.8 per cent over the past year in the biggest downturn since July 2009, according to Nationwide Building Society.
In the past 12 months nearly £10,400 has been wiped off the value of the typical home, which is now worth £260,828.
Soaring mortgage rates have placed a chokehold on the property market, squeezing affordability for millions of homeowners.
But borrowers face more mortgage misery, as the Bank of England is expected to raise interest rates again by 0.25 percentage points at its policy meeting tomorrow.
Over the past 12 months, £10,400 has been wiped of the value of the typical home as soaring mortgage rates have placed a chokehold on the property market
Former senior Bank of England official Alex Brazier warned yesterday that a recession may be needed to bring down inflation.
‘Inflation has now become entrenched and so, to be honest, getting inflation to 2 per cent – the Bank’s target – probably does entail a further growth slowdown or recession and higher unemployment,’ he said.
He predicted interest rates would peak below 6 per cent, meaning further rate rises would be needed in the coming months to bring inflation back under control.
Inflation fell to 7.9 per cent last month but remains stubbornly high. The increased cost of borrowing has already taken its toll on the housing market.
There are fears that another increase in the Bank’s base rate tomorrow could trigger further mortgage rate hikes.
Mortgage rates have already edged higher this week, with the average two-year fixed rate hitting 6.85 per cent yesterday, according to analyst Moneyfactscompare.
The 3.8 per cent drop in house prices marks the biggest downturn in the UK property market since 2009
As more homeowners switch to higher mortgage rates the housing market gloom is likely to accelerate, according to Alice Haine, analyst at investment platform Bestinvest.
‘No matter how good a deal a borrower finds in the current climate, anyone refinancing now faces significantly higher mortgage costs,’ she said.
‘The financial squeeze will only tighten, heaping even more downward pressure on property prices.’
Property values are expected to fall by another 10 per cent in the next year as the rising cost of borrowing has priced buyers out of the market and reduced affordability.
Robert Gardner, chief economist at Nationwide, said a typical first-time buyer with a 20 per cent deposit would now be forced to spend 43 per cent of their take-home pay on their monthly payments, up from 32 per cent a year ago.
‘This challenging affordability picture helps to explain why housing market activity has been subdued in recent months,’ he said.
