A return to mortgage rates of around 6% for the first time since 2007 guarantees a renewed slump in mortgage lending and a further leg down in house prices. Were mortgage rates to be sustained at that level for several years, a 25% drop in house prices would be likely. But our forecast that inflation will ease should allow interest rates to be cut from mid-2024, limiting the total fall in house prices to around 12%. The impact of higher mortgage rates will be most severe for those reaching the end of a fixed-rate deal this year, who will endure a similar increase in mortgage payments as borrowers did in the late 1980s.
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