UK house prices rose last month at their slowest pace in over two years, and they look on course to fall as a surge in mortgage costs adds to uncertainty about the economy for homebuyers, the latest residential market survey from the Royal Institution of Chartered Surveyors shows.

The slowdown in house price growth suggests the end of the UK’s 13-year housing market boom, while RICS also warns that many homeowners will struggle to make mortgage repayments and repossessions will increase next year as a result of soaring interest rates.

The number of inquiries from potential homebuyers dropped for a fifth month in a row in September, while property sales fell to the lowest level since May 2020 when the housing market all but ground to a halt during the early stages of the coronavirus pandemic, RICS said.

The number of new instructions to sell has continued to fall – stock levels are at historic lows with estate agents on average listing just 34 homes on their books.

“Storm clouds are visible in the deterioration of near-term expectations for both pricing and sales,” said Simon Rubinsohn, chief economist at RICS. “The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, shifting the dial in the housing market.”

House prices have remained resilient due to the supply-demand imbalance, but the pace of growth is rapidly slowing with forecasts of a major fall in property prices next year as surging interest rates heap pressure on household budgets.

Yesterday, the average two-year fixed mortgage rate hit 6.46%, while the average five-year deal was 6.32%, the highest level since the financial crisis in 2008, according to Moneyfacts.co.uk.

The Bank of England’s financial policy committee on Wednesday said that the proportion of households struggling to pay their mortgages would almost certainly rise to levels not seen since the 2008 financial crisis, if interest rates and living costs continue to climb.

“It will be challenging for some households to manage the projected rises in the cost of essentials alongside higher interest rates,” it said.

Surging mortgage rates are pricing new buyers out of the market, while homeowners looking to remortgage are facing crippling increases in payments.

“For now mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grow,” said Rubinsohn. “It is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.”

Rising mortgage costs and the broader cost of living crisis will outweigh any potential benefit from the government’s move to cut stamp duty to prop up the housing market, said RICS.

Tom Bill, head of UK residential research at Knight Frank, commented: “An era of double-digit price growth was already coming to an end but the mini-Budget looks set to accelerate that process. Sentiment has been damaged as lenders have struggled to fix rates, marking the end of a 13-year period of ultra-low borrowing costs.

“While we expect downwards pressure on prices, we do not expect the scale of declines seen during the global financial crisis thanks to record-low unemployment and well-capitalised lenders.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, noted that the RICS survey has always been regarded as one of the most accurate, “not least because data is collected from surveyors and agents ‘at the sharp end just before release”.

He said: “New buyers are pausing for breath while considering the pace and size of future interest rate hikes, so activity has reduced. Like us, many are waiting to see whether worries about mortgage repayments rising more quickly than expected outweigh benefits from cuts in stamp duty and other taxes – particularly for first-time buyers.

“Risks of a correction are greater but the market has proved its resilience repeatedly in the recent past. We’re told more borrowers have higher loan-to-value mortgage debt than in the last financial crisis of 2008 but we’re not seeing signs of a major correction in our offices yet.”

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