December 7, 2022
Mortgage catastrophe sparked fears of a housing market crash in the UK

UK mortgage rates have skyrocketed since Finance Minister Quasi Quarteng’s mini-budget on 23 September prompting banks to pull mortgage products threatens an expected housing market slump.

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LONDON – Fears of a housing market crash are rising in the UK, raising interest rate hopes after a tax cut announced by the government has raised lending rates for homebuyers.

On 23 September Finance Minister Quasi Quarteng’s so-called mini-budget shook the markets with a debt-funded tax cut worth £45 billion (. سباق احصنة 5 billion), leading to a massive increase in government bond yields. These are used by mortgage providers to price fixed rate mortgages. طريقة لعبة البوكر في الجزائر

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The Bank of England responded to the market catastrophe with a temporary buying program of longer-term bonds, bringing some fragile stability to the market. However, UK economist Andrew Goodwin, head of Oxford Economics, suggested there could be more pain ahead – especially when it comes to the housing market.

Gilt and sterling not out of the woods after tax cuts, say strategist

“Although the BoE’s temporary bond purchase program led to a decline in swap rates, they remain high, and many banks have already responded to a significant increase in interest rates on their mortgage products,” Goodwin said in a note on Friday. “

“A scenario in which home prices tend to crash is increasing the potential for an already strong headwind on consumer spending,” Goodwin said.

‘30% Overvalued’

Oxford Economics estimates that if interest rates remain at the levels currently being offered, home prices “are appraised by about 30% higher based on the affordability of mortgage payments.”

“While the higher spread of fixed-rate deals would help cushion the blow for existing pledgers, it is difficult to see how a sharp drop in transactions and a significant correction in prices could be avoided,” Goodwin said.

Berenberg senior economist Kallum Pickering noted that the housing market had begun to slump in recent months, due to a broad-based demand slowdown linked to rising borrowing costs and a hit on real income.

“But after panic selling in the gilt market and fears of the BoE raising the bank rate to 6.0% early next year, banks have started pulling mortgage deals in a hurry,” Pickering said in a note on Monday. “

Many banks suspended mortgage deals for new customers, and many have now returned to the market with significantly higher rates.

“Some banks have increased rate offers on their five-year fixed 75% loan-to-value mortgages to the 5.0-5.5% range, closer to 6% for new mortgages. This is about 200bp above the August average for comparable mortgages. is,” added Pickering.

interest rate expectations

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