Are you about to buy a house? if so, this is the most important thing you can read
The latest monthly figures from Nationwide show that house prices have fallen.
The Bank of England raised interest rates yesterday, which means that people with mortgages will be paying more. Further increases are expected.
House Prices: What Everyone Needs To Know
Over the last two years, prices have increased by about a quarter in most of the UK.
The rate of growth in housing prices over the past four years has been much faster than the rate seen after the 2008 financial crisis, when houses lost about a sixth of their value and it took five years, on average, for prices to recover.
However, they have now started to slow.
Nationwide figures show that prices have fallen sharply - the biggest month-on-month drop since the middle of 2020.
Compared to October's rate of 7.2%, prices rose by 4.4% on an annual basis.
"The housing market is likely to remain subdued in the coming months," said the building society.
Will Prices Fall In The UK? Is Everyone Talking Nonsense?
Lloyds, the largest lender in the UK, is expecting a price drop of 8% next year.
The Office of Budget Responsibility (OBR), which advises the government on economic matters, predicts that house prices will drop by 9% over the next two years.
Sharp increases in interest rates make it hard for people to afford homes, which means there's less demand for them.
When deciding whether to buy a house, remember that factors such as energy bills, wages and job security can influence mortgage affordability. The future of house prices will depend on how well the economy performs overall.
When House Prices Fall, What Happens?
People who want to move are most immediately affected by falling house prices.
Some sellers who have been thinking about selling their homes may decide to delay doing so. Homeowners who are considering moving will have less money to spend on a new home.
This year's number of property sales was lower than the number of sales in the 12 months leading up to last summer's surge in prices before the temporary stamp duty reduction ended.
But if interest rates stay high, more and more people will want to get out of their fixed-rate mortgages.
The higher monthly payments will make some homeowners too uncomfortable to stay, making them more likely to sell.
First-time buyers can find it easier to get on the property ladder, but they must secure a mortgage first.
But a drop in prices can also cause horror among owners who want to sell.
When homeowners fall into negative equity, they owe more than their house is worth.
When home prices drop, people often feel a sense of loss and become less likely to spend.
Less spending can exacerbate an economic slowdown.
Are people struggling to pay their mortgage?
During the 2008 financial crisis, the number of people in arrears on their mortgages rose sharply. Although arrears did not rise significantly during the pandemic, lenders granted payment holidays to help customers who had been affected by it.
If you don't keep up with your mortgage payments, your lender may take steps to repossess your house. Although lenders try to avoid this.
More than 200,000 homes were repossessed during the five-year period following the financial crisis.
The Covid pandemic forced a suspension of repossessions between March 2020 and April 2021. Repossessions resumed in May 2021, but began at a slower pace: There were fewer than 4,000 repossessions in the year after they restarted.
Should You Be Afraid Of A House Price Crash?
When the Bank of England raised interest rates by 0.75 percentage points to 3% on 3 November, it was the biggest single rise in borrowing costs since 1989.
After the mini-budget, financial markets were forecasting that the Bank of England's interest rate would rise above 6% in 2023.
Traders are now predicting that the peak of the housing market will be below 5%. You can use our mortgage calculator to see how much smaller a monthly repayment would be for a house at that price.
In the early 2000s, 100% mortgages and cashback offers were common.
Since the 2008 financial crash, mortgage lending rules have been tightened.
As a result, borrowers should be able to avoid negative equity in the event of a further decline in prices.
If you're a recent borrower, chances are your ability to make payments has been checked against interest rates even higher than the ones we're seeing at the moment.