You won’t BELIEVE how stubborn inflation has DESTROYED the UK housing market!

Mortgage lenders hiked rates again this week, intensifying fears of a significant drop in home prices as homebuyers and homeowners struggle with higher borrowing costs.

In a letter to brokers, HSBC said Thursday evening it was withdrawing its range of new residential and buy-to-let mortgages offered through brokers. They will only return to the market on Monday with tariffs expected to increase on many products.

Nationwide, the UK’s second-largest mortgage lender updated its rates on Friday, with fixed-term mortgage rates rising by as much as 0.25 percentage points, while tracker rates, which account for a much smaller percentage of the market, decreased to 0.85%. points. Other lenders, including Halifax, Monmouthshire Building Society and West Brom Building Society, also re-evaluated or withdrawn products this week.

The moves follow several weeks of rising mortgage rates, with lenders including Santander and Accord, part of the Yorkshire Building Society, price increase last week. Costs have increased in the wake of official figures last month showing stubbornly high core inflation in the UK. This has changed market expectations for how long the Bank of England will need to keep raising interest rates.

“We’re at the stage where it’s not clear when these rate hikes will slow, some lenders have increased their mortgages two or three times recently,” said Aaron Strutt, product and communications manager at brokerage Trinity Financial.

The housing market, which was just starting to pick up steam in the spring after the autumn mini-budget shock, is now facing a new headwind due to the strain on mortgage affordability.

“Mortgage rates around 5% are probably the tipping point,” said Aneisha Beveridge, head of research at Hamptons. “Most families can still handle four-legged mortgage rates. It seems like 5% starts to make it really unaffordable for some people,” she said.

Five-year rates rose to 5.41% on average, according to financial site Moneyfacts, from 4.97% in early May. Over the same period, two-year average fixed rates rose from 5.26% to 5.83% on Friday.

Higher mortgage rates will stretch the budgets of prospective buyers, especially those looking to move up the real estate ladder. Mortgage payments for first-time buyers had already soared to 37 percent of take-home pay in the first quarter — the highest since 2008 — according to mortgage provider Nationwide.

“First-time buyers are struggling in the market,” said John Ennis, chief executive of estate agent Chestertons. He added that there were fewer buyers with small deposits and a higher share of international investors, cash buyers and those with financial help from their parents. “It’s not a healthy market,” he said.

Rising borrowing costs will also hit the finances of millions of homeowners, who will have to mortgage at higher rates when their contracts expire. Data from the Bank of England showed that some 430,000 households were required to refinance each quarter during this year. “We’re more concerned about arrears now than we used to be,” said Andrew Wishart, a senior real estate economist at consultancy Capital Economics.

Rising mortgage costs have already had a cooling effect on the housing market. Mortgage approvals fell to 48,690 in April, less than half of a November 2020 peak and down 26% from the same month in 2019, before the pandemic, according to BoE data.

Home prices are falling according to most indexes, with Nationwide posting an annualized decline of 3.4% in May, the biggest drop since 2009 and a 4% drop from its August peak.

Capital Economics expects home prices to fall another 8% by mid-2024 and said the recent change in mortgage rates made that scenario more likely. Lender Moody’s on Thursday forecast a 10% drop in two years, attributed to “persistently high inflation and the recent hike in lending rates.”

Beveridge said market sentiment is a key driver for home price levels and will be impacted by the unpleasant inflation surprise. “The risks are certainly higher than they were a couple of weeks ago,” she said.

Buyers are hoping for rebates to offset a larger mortgage payment. “Higher rates are in every negotiation, but they don’t block transactions,” said Roarie Scarisbrick, a partner at Property Vision, a leading buying agent in central London. Buyers “want some of the pain they’re facing to be reflected in the price,” she added.

Inspectors reported a decline in new buyer inquiries and home prices in May. While the pace of the fall has eased from previous months, the Royal Institution of Chartered Surveyors warned that “expected further interest rate hikes by the Bank of England are likely to dampen positive trends”.

However, many experts say the market is unlikely to crash as precipitously as it did during the financial crisis. House prices fell by 17.5 percent between November 2007 and April 2009, recovering their pre-crisis level only in 2014, according to data from the Office for National Statistics.

In the current recession, home prices are expected to be supported by a variety of factors, including a strong and tight job market, historically low housing supply and an improving economic outlook.

The latest official statistics showed that the UK unemployment rate remained close to its lowest since records began in 1971, with over 1 million jobs unfilled. Furthermore, the BoE said in May that it no longer expects real household income to decline as gas prices fell sharply from their August peak, raising expectations that the economy will avoid a recession.

Economists polled by Consensus Economics now expect unemployment to rise less than previously forecast. As job prospects improve, real estate analysts will be watching monthly inflation rates closely.

“Much of it depends on these inflation figures. That’s what it all boils down to,” Beveridge said.