According to a report by Moody’s Investor Service, the UK housing market (Aa3 negative) will experience a correction due to persistently high inflation and the recent spike in lending rates. HSBC, the largest bank in the UK, temporarily withdrew mortgage deals through broker services in response to the ripple effect of higher interest rates on the housing market. The bank stated that it is regularly reviewing the situation and did not specify whether new deals would differ from previous offerings. This move comes eight months after hundreds of mortgage deal offers were pulled in one day, causing concerns about rising base rates.
HSBC clarified in a statement on Friday that they occasionally need to limit new business taken through brokers to meet customer service commitments, while emphasizing that they remain open to new mortgage business. Analysts predict that mortgage rates will soar and housing prices will plummet as a result of the increased base rate. Economic research company Capital Economics revised its mortgage rate forecasts, stating that borrowers will be subject to a larger interest rate shock than previously expected, especially for those coming to the end of a 2-year fix.
Moody’s Investor Service forecasted a 10% decline in house prices due to persistently high inflation and the recent spike in lending rates. The Halifax House Price Index showed that UK house prices were flat in May, while the average UK property now costs £286,532 ($360,000). In February, UK house prices experienced their sharpest contraction since November 2012, according to building society Nationwide.
The Bank of England raised its interest rate to 4.5% from 4.25% in an attempt to tackle high inflation, which currently stands at 8.7%, well above the 2% target. The UK is predicted to have the highest inflation rate among all advanced economies this year by the Organization for Economic Cooperation and Development. Lenders and homeowners are closely watching the central bank for its next base rate decision on June 22, with expectations of its thirteenth consecutive increase.
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