We're watching a slow-motion house price crash - falling all the way to 2028

If correct, this will be a terrible blow for buyers who recently got on the property ladder, as they may soon fall into negative equity and stay there.

It would also spell disaster for homeowners who are struggling to keep up with their rocketing mortgage payments and have to sell, with buyers in short supply.

The main reason house prices have been climbing for the last 20 years is that the Bank of England slashed base rates almost to zero.

The BoE has now thrown years of dangerous ‘easy money’ policies into a sharp reverse to curb inflation, deflating the bubble it originally caused.

Its monetary policy committee has hiked base rates for 12 meetings in a row to today’s 4.5 percent. Rates could soon hit 5.5 percent, with some warning they could top six percent

House prices are set to fall by 9.4 percent in total from last year’s peak, according to new research from Oxford Economics.

The bulk of the slide will be over the next couple of years, with the market potentially bottoming out by September 2025.

However, prices will not recover for another three years after that, until 2028.

We are watching a slow-motion house price meltdown rather than an overnight crash, but it will still hurt like hell.

With base rates set to continue climbing, lenders have pulled hundreds of existing mortgages in the past week, and hike rates on many more.

In March, the average two-year fixed rate mortgage fell to a six-month low of 5.32 percent, with five-year fixes slightly cheaper at around five percent, according to Moneyfacts.

Now both are hurtling towards six percent and are set to climb higher, mortgage brokers tell me.

House-price-crash-4

House-price-crash-4

Today, some 7.7million out of the 10.7million Britons who have mortgages are on a fixed rate, new analysis by credit specialist Equifax shows.

Currently, they face an average increase in repayments of around £300 a month when their mortgages mature, assuming they revert to their lender’s standard variable rate (SVR).

Many will face an even bigger jump in what will be a terrible payment shock.

By my calculations, somebody who is paying two percent on a £170,000 mortgage over the typical 25-year term will see their monthly interest payments jump from £636 to £921 if their new deal charges 5.5 percent, a jump of £285 a month or £3,420 a year.

At the same time, new mortgage applicants will have to pay a lot more, too. Just 18 months ago, the average mortgage applicant paid £1,000 a month.

Today, they will pay up to £1,400, Equifax says.

With the average monthly income £2,560, this means mortgage payments will take up more than half of the typical person’s monthly pay, at the same time as household bills skyrocket.

Paul Heywood, chief data & analytics officer at Equifax UK, said some consumers could become mortgage prisoners as rates rise, which will leave them unable to shop around for a better deal because other lenders consider them too risky.

Many will end up stuck on an uncompetitive rate with their existing lender as a result, and there won’t be much they can do about it.

Heywood expects to see a gradual increase in missed mortgage payments, too, as borrowers fall into arrears.

“Diminishing affordability levels may also restrict or even stall growth in house prices, perhaps leading to a correction in the housing market.”

Another 3.4million homeowners are reaching the end of their fixed rate mortgages across this year and next, according to bank trade body UK Finance.

As their deals expire, the problems will slowly but steadily roll out across the country.

Terrifyingly, Oxford Economics doesn’t expect base rates to start falling back towards two percent until the end of the decade, seven years away in 2030.

This morning, Halifax reported the first annual decade decline in house prices for a decade as rising mortgage rates start to bite. Nationwide has previously reported a 3.4 percent drop.

Gareth Lewis, managing director of property lender MT Finance, said falling prices are no surprise as transactions plunge. “With everything else costing more, buyers are chipping away at asking prices.”

He said we’d better get used to it: “Money isn’t free and you are going to have to pay more for it in future. The housing market will inevitably be quieter as a result.”

If Oxford Economics is correct, it could be quieter for a lot longer than people think.