Personal Account

Today’s mortgage crisis is not a repeat of 2008 – it’s happening much more quickly

Property market crises usually happen in slow motion. In 2007-8, there were months between the run on Northern Rock and the widespread realisation that there would be a profound, devastating crash.

But the speed at which the mortgage market has deteriorated this week is unprecedented, sowing chaos and uncertainty.

The only comparable time was the moment at which the market was completely closed down as the start of the national lockdown in March 2020.

This week, thousands of mortgage deals have been pulled in a matter of days while lenders temporarily shut up shop to try to work out just how bad the latest crisis will be, while slashing the amount they are willing to lend buyers. Mortgage rates have been rising since earlier this year, but the sudden crisis in the bond markets has dialled up the pain, and also potentially pushed up rates higher than they would have been, for longer.

Buyers are at a loss as to how to deal with it all; I should know, as I am one of them. Literally overnight, properties have become unaffordable as rates soar.

Scared property hunters are backing out of deals, collapsing chains.

Sellers are giving up. I’m not sure if battling my way through the market now is brave, or stupid. The only reason to push through is the thought that rates will be far higher than they are now for many years.

But this crisis will not be evenly felt: 36pc of homes in the UK are owned with no mortgage, according to the Office for National Statistics. It’s even higher among older people, with 66pc of those aged 50 to 65 owning their property outright. These homeowners will be insulated from rising rates and the unfolding remortgage crisis that for some will mean a doubling or trebling of monthly repayments. That leaves 28pc – some 6.8m properties – owned with a mortgage or loan. And don’t forget the 19pc of homes that are privately rented, who will face higher rents if their landlord cannot meet their mortgage repayments. This will wholly hit people whose finances are already pushed to the brink by the energy crisis and the soaring cost of living.

If people are not able to pay their mortgages, they will be forced to sell. If average mortgage rates hit 6pc, home loans will be 35pc smaller than when mortgage rates were 2pc, according to Zoopla. A typical buyer will only be able to borrow £ 125,775 compared with £193,500 – a drop of nearly £68,000.

These two factors, of course, will hit house prices sooner or later – although we will not see the effects in official data for months because those completing now would have secured their mortgage offers months ago, when rates were far lower. Until then, we will have to look for the warning signs: falling buyer inquiries, more sales collapsing and asking prices crashing as vendors slowly realise the reality.

Capital Economics and Credit Suisse have now pencilled in price falls of 10pc to 15pc – although due to the recent boom, that only takes us back to 2021 prices. This crisis isn’t just about house prices falling, it’s an allenveloping, sudden collapse of the market.

Scared property hunters are backing out of deals, collapsing chains. Sellers are giving up