House prices are 'detached from reality'

British house prices will fall by up to 10% as interest rate rises cause a global property crash, leading economists have warned. Property prices had become “detached from reality” and will fall between 5% and 10% in the UK over the next 18 months, according to forecasts from Capital Economics, a research consultancy. Neil Shearing, of Capital Economics, commented: “We think the shift from boom to bust in housing will shave between 0.5% and 2.0% off GDP in the US, UK, Canada, Australia and New Zealand over the next couple of years.” In Britain, the hit to GDP will be between 1% and 1.5%, he added. In the UK, the average rate on a two-year fixed-rate mortgage has seen the biggest six-month rise in nearly 20 years. Pantheon Macroeconomics, another analyst, expects the average rate will hit 3.2% this month, up from 1.53% in November. This will cost the average buyer an extra £3,600 per year in mortgage bills.

The Daily Telegraph