The Recent Mortgage Crash

The recently announced tax cuts by the UK government have sparked fears of a housing market crash in the country. The tax cuts have resulted in a rise in interest rates and an upward trajectory of lending rates. For potential homeowners, the housing market is ever growing and dynamic market. That is why it is advisable to seek advice and solutions from a trusted source.

How Did The Mortgage Crash Come To Happen?

When Finance Minister Kwasi Kwarteng delivered the much-criticized mini-budget on 23rd September, the housing market in the country seemed to be the biggest casualty. The tax announced by the minister meant to stimulate economic growth resulted in a massive spike in demand for government bonds. This is because the tax cuts resulted in increased demand in the housing market, leading to more prospective buyers rushing to take advantage of the already constrained housing market. Furthermore, this has also resulted in banks increasing mortgage interest rates, thus increasing the risks of a housing price crash. The result is that there will be a predictable soar in housing prices in the upcoming months.

What The Mortgage Crash Means For New Homeowners

While the housing market prices have continued rising, the market has been relatively buoyant, particularly aided by demand exceeding supply. This entails that the lack of homes to purchase means those available will demand higher prices. What happens in the future will thus depend on what prospective buyers intend to do. For example, will they go on with their plans and take advantage of the tax cuts but buy homes at astronomical prices, or will they tone down their ambitions for now? In the meantime, prospective new homeowners should embrace themselves for higher interest rates from banks, which are predicted to go on an upward projection in the foreseeable future.

What High-Interest Rates Mean For The Housing Market

The tax cuts resulting in an upsurge in demand have caused the ripple effect of mortgage prices being overvalued by almost 30%. While one way to cushion this would be to introduce fixed-rate deals, it is almost impossible to see how this would happen given the surging demand and limited supply. However, the rising costs of living and the increased interest rates by the Bank of England from 0.25 towards the end of last year to its current 2.25% and over the projected 5% for 2023 may help ease the situation and average mortgage rates. The projected increase and the slowing economy also mean banks will continue being cautious when pricing their mortgage products. The higher mortgage rates in the meantime will hurt consumption, and households will bear the brunt of higher interest rates.

The Overall Effect On The Market

Ordinarily, when the lender provides higher interest rates, they enjoy a healthy profit. However, charging high-interest rates may also be very risky, especially when there is the likelihood that the borrower may not be able to repay the loan. This is the situation many prospective new homeowners are facing in the UK, given that in the few years to come, they may have to repay loans that are more expensive than their homes. However, the situation is not yet that dire, and investors will closely monitor the currency markets in the next few weeks. If the pound stabilizes, this will mean that the Bank of England will not overreact and resort to emergency measures. That will give lenders the leeway to offer affordable mortgage products to potential homeowners.


The recent mini-budget by chancellor Kwasi Kwarteng caused a lot of turbulence, with the housing sector being the hardest hit. While the government of Liz Truss is advocating for an acceleration in growth, the mini-budget had the negative effect of increasing interest rates, which was the opposite effect of the intentions of the new Prime Minister. Since the tax cuts were unfunded, the reaction was higher inflation rates, which would result in a harsh response from banks. 

The chaotic unveiling of the new economic strategy going forward has caused wild reactions among mortgage lenders as they try to come to grips with the wild market swings as they try to determine which rates to give to homeowners. Furthermore, this has even led to some institutions halting their mortgage operations to new customers, with others selling at exorbitant rates, making their products almost unaffordable for potential buyers. 

New buyers are now staring at mortgage deals rising to 5-6%, which is a sharp increase given that the rates stood at around 2% five years ago. That has resulted in some predicting a collapse in the housing market and the crisis coming out of hand. Those buying homes at the current inflated values are thus warned that a drop in houses in the future may leave them with debts greater than the value of their homes.

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