Will Kwarteng’s U-turn mean lower interest rates?

PK_London

dander said:

I think it highly likely property prices will drop back as mortgage prices rise - it just stands to reason that people won't be able to access as much money to fuel the higher prices. However 20-50% seems exceedingly unlikely. I bought my first flat in the early 90s and it's definitely true that where I was buying prices had dropped by a full 50%. However, that size of drop wasn't across the board by any means. Those price drops were fuelled by huge amounts of repossessions, rather than just lack of first time buyers and there's been a lot put in place over the years to prevent that scale of repossessions. Banks are much more likely now to extend mortgage terms and similar to keep people in their homes - it pays them to do it because repossessions just cost them money in the long run. If people don't need to sell, the result is just fewer houses on the market, and reduced supply is what pushes prices up, or at least would stop them falling.

The wildcard is the buy-to-let market. I think there's a lot more small-time buy-to-letters these days who may get stung by increasing mortgage costs and prefer to get rid of the liability. But even in that case it might mean there's an over-supply of city centre flats, but the rest of the market would still be in low supply and relatively resilient.

In the 90s, far more properties were mortgaged and far more people were on trackers so when rates rose a lot of people were distressed sellers or got re-possessed. In 2022 far more properties are owned out right, far more people are on fixed rates and there are a supply constraints. The pound is cheap and a lot of foreign investors will see UK property as an inflation hedge. I will be surprised if prices fall much if at all. 

People will have to accept what they could afford 6 months ago isn't what they can afford now and it will be the more affluent buyers who can afford anything at all.