Economists have warned that house prices in Britain could fall by up to 10 percent “in the near future” as rising interest rates send property markets around the world crashing.

According to Neil Shearing, chief economist at Capital Economics, rising borrowing costs and the expectation of further increases in the coming months are already causing a “sharp downturn” in housing markets in advanced economies, including the UK.

UK house prices have risen by double digits over the past year, with the latest Halifax index showing an annual rise of 13 per cent in June – the highest annual rise since 2004.

UK house prices forecast to fall 5-10% due to Bank of England rate hike

This recent surge in prices “looks alarmingly similar” to what happened in the run-up to the global financial crisis, Shearing said, although he noted that a crisis on the scale of 2008 was “unlikely”.

According to Schering, the recent boom in prices was driven by record low interest rates in contrast to loose lending standards in the run-up to the 2008 financial crisis.

But as central banks, including the Bank of England, now steadily increase borrowing costs to fight inflation, they are also removing a “key support” for housing markets.

Higher mortgage rates are squeezing first-time buyers and those looking to remortgage, where home loan rates jumped from 1.6 per cent to 2 per cent on average.

According to Moneyfacts, average mortgage rates rose by 0.5 percentage points in the last month alone.

Five-year fixed-rate deals now average 3.89 percent, up 0.52 percentage points from June and the highest rate since November 2014.

The pressure on homebuyers will increase as the Bank of England continues to increase its base rate, currently at 1.25 per cent, after five increases since last December.

According to the economist, who predicts that this time it will happen faster than during the crash of 2008, all the signs of an inevitable price correction are already there.

Measures of housing market activity, such as mortgage approvals and sales, all started to fall, the economist said, describing it as the “third stage” of a typical housing downturn that follows a slowdown in market sentiment and buyer inquiries.

The fourth stage is a fall in prices – and Shearing predicts a 5-10 per cent drop in the UK, with a much larger drop of 20 per cent in New Zealand and Canada, where “the markets are particularly overpriced”.

House prices in Australia are expected to fall by 15 percent, in Sweden by 10-15 percent, while in the US they are likely to fall by 5 percent.

Capital Economics said the recent surge in prices

Capital Economics said the recent surge in prices “looks alarmingly similar” to what happened in the run-up to the global financial crisis

Signs that the UK housing market is slowing have intensified in recent months, despite prices continuing to rise in double digits.

The Royal Institute of Chartered Valuers (RICS) recently reported that the number of new inquiries from potential buyers fell in May for the first time in eight months.

The number of UK home sales rose by 1.3 per cent between April and May, according to HMRC’s latest property transaction figures, but they are 5.1 per cent lower than a year ago.

Meanwhile, the latest data from the Bank of England shows that the number of mortgages approved rose by just 0.1 per cent in May, down almost a quarter from last year.

“The US, UK, Canada, Australia, New Zealand and Sweden are now in their third recession,” Shearing said.

“Moreover, compared to the mid-2000s, it’s happening more quickly, and most indicators show a steeper initial decline.”

A cooling housing market is unlikely to keep the Bank of England from raising interest rates further, he added.

In Britain, mortgage payments as a share of average disposable income are still well below the housing bubble levels of the mid-2000s and early 90s, economists say.

In Britain, mortgage payments as a share of average disposable income are still well below the housing bubble levels of the mid-2000s and early 90s, economists say.

However, he believes that both home buyers and banks are better prepared to weather the downturn than they were in 2008.

“In the UK, low borrowing costs mean that despite rising prices, mortgage payments as a share of average disposable income are still well below levels seen in both the mid-2000s and early 90s bubble “, said Shearing. .

At the same time, he added: “A crisis of such scale as 2008 is unlikely. But the downturn in housing construction will nevertheless hurt developers and the construction sector, and it is possible that it could spill over into problems in the non-banking financial sector.

“Recessions can reveal weaknesses in industries that are hard to predict.”

He expects the boom-to-bust transition in housing to reduce gross domestic product in the UK, as well as the US, Canada, Australia and New Zealand, by between 0.5 and 2 per cent over the next few years.

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