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Mortgage market cools: will house prices crash?

For sale sign outside a home in an affluent suburb of London

New mortgage data for Q3 shows that the mortgage market is cooling. And the recent announcement of a rise in interest rates may cause the housing market to cool further. So, will house prices crash in 2022?

Here, I take a closer look at why the mortgage market has cooled, and what the slow down in mortgage applications suggests for the future of house prices in the new year.


What’s happening to the mortgage market?

Fewer Brits took out new mortgages in Q3 than in Q2 of 2021.

According to Bank of England data, Brits borrowed £73.4 billion in mortgages between July and September. That figure is down £15.6 billion from the previous quarter. 

Nearly a quarter (22.9%) of the mortgages agreed were remortgages, up from 16.5% the previous quarter. This is the first rise since the first three months of the pandemic, and it takes us to similar levels seen this time last year.

According to Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, “The mortgage market is cooling, but there’s nothing to chill the blood in these figures”. Essentially, the fall in mortgage applications was largely expected. 

Why is the mortgage market cooling?

The mortgage market is cooling partly due to the end of the Stamp Duty holiday. Mortgage applications appear to have dropped back because there was an unusually high number of applications earlier in the year. This was due to the number of people rushing to buy before the Stamp Duty holiday ended.

Mortgage applications in Q3 actually increased by 17.4% compared to the same period in 2020. So the slow down mainly reflects the surge in applications earlier in the year.


What should we expect this winter?

Experts predict that we can expect the mortgage market to cool further this winter. The expected drop is due to the usual seasonal slowdown. However, the mortgage market won’t freeze over altogether. We can expect remortgage numbers to climb, and mortgages for purchases to hold up reasonably well. 

Will house prices crash in 2022?

Hargreaves Lansdown predicts that house prices should remain robust in 2022. 

Even with the interest rate rise, mortgage rates are still very low. This means that although house prices are high, bigger mortgages are still affordable for many families.

Not only that, but the race for space is still very much on in the housing market. A Bank of England study out yesterday revealed that just under half of house price rises during the pandemic were driven by families wanting more space. This includes the demand for bigger properties, homes outside London, and the premium on houses rather than flats of the same size. 

There is also currently a long-term shortage of houses in the UK. If this demand for houses consistently outstrips supply, then this will continue to drive up house prices. In summary, despite recent changes that have impacted the market, a house price crash is unlikely in the near future.

The post Mortgage market cools: will house prices crash? appeared first on The Motley Fool UK.

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