House prices could fall by as much as 15 per cent if interest rates continue to rise, economists have warned.
The apocalyptic warning on property prices has been triggered by the sharp fall in the value of the pound after it hit its lowest level against the dollar following the uncosted Tory mini-budget last week.
Ray Boulger, from the mortgage broker John Charcol, has predicted a 10 per cent fall in UK house prices next year, while analysts have warned prices could drop as much as 15 per cent. Boulger said the gilt market meltdown, and the risk of interest rates rising to six per cent by next summer “makes it very difficult to know where to price mortgage products”.
This will undoubtedly have an impact on the housing market, he told the BBC: “We can expect to see a significant fall in house prices, perhaps 10 per cent next year.
“Whilst at the moment I don’t think we’re going to see many more forced sellers… it’s certainly going to have an effect on people’s ability to buy.”
The dire warning came after an extraordinary overnight statement from the IMF, the worldwide monetary watchdog, on the state of Britain’s finances following Kwasi Kwarteng’s shock mini-budget which cut the top rate of tax from 45p to 40p.
The IMF said it was “closely monitoring” developments in the UK and was in touch with the authorities, urging the Chancellor to “re-evaluate the tax measures”.
It warned the current plans, including the abolition of the 45p rate of income tax for people on more than £150,000, are likely to increase inequality. The warning comes after the Bank of England said it could raise interest rates to six per cent next year, a signal which led to mortgage lenders withdrawing products on Tuesday.
Kwarteng will step up efforts to reassure the City about his economic plans in a meeting with big banks on Wednesday, following days of turmoil which saw the pound buffeted and Government borrowing costs increase after his mini-budget spooked the markets with its package of tax cuts and increased borrowing.
Labour leader Keir Starmer said the chancellor must “urgently review” tax cuts and claimed the Tories have lost the right to ever claim to be the party of fiscal responsibility.
He told BBC Radio 4’s Today programme that “self-inflicted” economic wounds have been inflicted on the economy, adding: “It’s the worst of all situations for our country to find itself in.”
He added: “Rather than coming on and disparaging the IMF, the Government needs to come on and urgently review the plans that it set out last Friday.
“The Conservative Party can never again claim to be a party of fiscal responsibility, they’ve lost the right to claim that after what they did last Friday.”
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