House prices are falling at record speed

Zoopla expert predicts house prices will fall by 22% by 2026 On Tuesday, Nationwide’s latest survey showed prices fell 3.8 percent in the year to July, the fastest drop in 14 years. Things will get worse. Some experts reckon prices could fall by 25 percent. Yet rather than being gloomy, I can see five reasons why we might avoid a crash. By almost every measure, UK property prices should be falling at a much faster rate. Mortgage rates have rocketed from less than two percent to almost seven percent, heaping pressure on two million homeowners whose mortgages will expire this year and next. They face paying hundreds of pounds extra every month to service their home loan, on top of all the other extra costs everyone faces today. Worse, a growing number of homeowners are heading into retirement with unpaid debt, which will prove a growing burden once they stop working. First-time buyers are unable to take advantage because they can’t afford mortgages either, reducing demand. House prices should be stormier than a typical British summer but here’s why I reckon we’ll avoid getting soaked. 1. We have a competitive mortgage market. While the big banks no longer compete on savings rates, they are fighting for mortgage business. Average two-year fixed rates recently hit 6.86 percent, according to Moneyfacts.co.uk, but they’re already starting to slide with Barclays, TSB, HSBC and Nationwide all cutting in recent days. House prices are unlikely to fall far when there is so much demand out there Experts expect the downwards trend to continue even if the Bank of England hikes rates tomorrow as expected. If correct, this will further ease the pressure on borrowers. 2. Most homeowners are debt free. As young buyers struggle to afford a property, homeowners are getting older. The result is that almost seven in 10 have completely cleared their mortgage. This means they don’t have to worry about rising interest rates at all. Also, with property so expensive, you need to be pretty well off to buy in the first place. Among homeowners who do have a mortgage, more than eight in 10 have above average earnings. Wealthier people typically have more savings, too, giving them a financial cushion. While it’s frustrating that lower earners cannot afford to buy a property, it is offering the market some respite. Sadly, this is little consolation for those at the sharp end of rate hikes. 3. Fixed-rate mortgages have done their job. For the last decade, most homeowners have protected themselves by taking out fixed-rate mortgages. The result is that only around one in 10 new deals are on a variable rate, giving protection from BoE hikes. While many brokers and buyers prefer two-year fixed rates, more than half have fixed for three years or longer. That’s turning out to be a wise move. Somebody who took out a five-year fixed-rate a couple of years ago has three more years of protection. By the time their deal matures, interest rates should be much lower. 4. The BoE has actually done something right! It’s hard to believe given BoE governor Andrew Bailey’s string of recent policy errors, but back in 2014 it made a good call. The BoE’s Financial Policy Committee’s mortgage market measures limited lending to borrowers at higher loan-to-income ratios of more than 4.5 times earnings. At the same time, the Financial Conduct Authority’s responsible lending requirements set limits on mortgage debt, further boosting borrower resilience. Post-financial crisis regulatory measures also boosted the capital strength of our banks, so they don’t need to panic and unleash a wave of property repossessions, as they’ve done in the past. 5. We have more buyers than homes. House prices are largely determined by the laws of supply and demand, just like any other market. Demand continues to outstrip supply because we aren’t building enough homes for our fast-growing population, and that’s not going to change. Throwing up new properties isn’t quite as easy as Labour leader Keir Starmer would have us believe. Today’s high immigration rates make it impossible to keep up with 3.7million more people living here than a decade ago. The UK’s housing crisis is causing misery but will also spare us a full-blown house price crash. Ironic, isn’t it?