Why UK house prices could plunge by 20% after the latest interest rate hike – The Guardian

AnalysisWhy UK house prices could plunge by 20% after the latest interest rate hike Economics editor

Property market has defied gravity for years but analysts say rising mortgage rates will mirror the 1980s price crash

Britain’s estate agents normally radiate optimism but they will be watching anxiously at noon next Thursday when the Bank of England is expected to announce the latest blow to a rapidly weakening property market.

Crunch time has arrived for a sector that for years has appeared to defy gravity. Threadneedle Street’s monetary policy committee (MPC) is poised to raise official borrowing costs for a 10th meeting in a row, with mortgage approvals already running 30% below their pre-pandemic levels and house prices down by 4.3% from last August’s peak, according to the Halifax bank.

Further falls are inevitable as borrowers adjust to an era of persistently higher interest rates. The City is braced for a half percentage point rise, to 4%, and for the rate to remain at least as high until the Bank is sure inflation is sustainably on course to hit its 2% target.

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Analysts are agreed that 2023 will see further falls in house prices, with one predicting a peak-to-trough fall of more than 25% once inflation is taken into account.

There are structural reasons why house prices tend to go up in the UK – tough planning laws, a tax system that rewards home ownership, a sharp fall in the number of new homes being built since the 1950s and 1960s – but occasionally there are breaks in the trend.

This year is on course to be one of those break periods. A

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