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House prices still rising

Mortgage costs set to soar

Headline figures for the UK house price index show that house prices saw another rise of 0.9%, on a non-seasonally adjusted basis, in August but growth is certainly now slowing. While the cost-of-living crisis was no doubt biting at that point and is reflected in the slowing growth, the turmoil and furore of the mini budget and then huge projected mortgage increases has yet to be priced in.

Despite new chancellor Jeremy Hunt axing almost all of Truss’ mini budget policies, one that has remained is the stamp duty cut. This may serve to help soften any dip in house prices as we enter a turbulent time for the UK property market. However, any stamp duty savings made are likely to quickly be swallowed up by the huge increases in mortgage payments people are already suffering, which will only get worse as the Bank of England rachets up its base rate.

As people are squeezed by their mortgage payments, the cost of living the pressure may get too much for some and the only option might be to sell their home in a bid to downsize to realise cheaper monthly payments. If this happens up and down the country, at much the same time, then the flood of properties will naturally push prices down as the market has remained so buoyant over the last two years because of the severe lack of stock.

This might spell good news for some who are struggling to get a foot on the ladder due to high house prices, but again affording mortgage rates around the 6% mark is no easy feat so first time buyers won’t be celebrating any time soon.

If house prices do drop considerably those who have bought in the past year or so with a high loan to value mortgage may be at risk of suffering negative equity. In fact, our analysis of new Freedom of Information (FOI) data from the FCA shows that at least 80,000 borrowers who took out mortgages with a loan to value (LTV) of more than 90% last year, could go into negative equity if house prices drop more than 20%.

Negative equity drastically reduces your options and can leave people stuck in their homes with no other refinancing options. With the housing market and the economy as a whole looking precarious at the moment, taking out a high loan to value mortgage deal doesn’t leave the buyer much equity to play with and ultimately could leave them worse off in the long run.