As many as 200,000 people face losing the home they own in the widely-expected recession that is about to hit Britain, economists have said. Rising mortgage rates and an anticipated downward correction in the housing market will leave many unable to sustain their living situation, they predict.
Both the Bank of England and the Office for Budget Responsibility estimates that the UK will slip into continued negative growth by the end of the year, after official figures showed a contraction in the last quarter.
Though the recession is being classed as a shallow one, it is expected to last well into 2024, making it one of the UK’s longest in recorded history.
At the same time, interest rate rises brought in by the BoE in a bid to stem soaring inflation have pushed the cost of borrowing higher, meaning mortgage payments will increase.
Following the Chancellor’s budget on Thursday, real household incomes are expected to slip to their lowest levels in six decades, with the tax burden at its highest since World War 2.
READ MORE: Squeaky bum time for housing market, but hold your nerve TERRY FISHER
The Resolution Foundation has warned that one in five homeowners under the age of 34 could be unable to make repayments on their home.
Sophie Hale, an economist at the think-tank, told the Sun: “The combination of rising mortgage costs and falling house prices risks dealing a double-punch blow to young homeowners as they struggle through the cost-of-living crisis.
“If house prices were to fall by nine percent as the Government’s official forecasters predict, then over 200,000 homeowners could be plunged into negative equity, with young home homeowners most at risk.”
A post-budget report she was one of the authors of suggested laid bare the impact on family finances of Jeremy Hunt’s cuts.
Many are likely to feel their pockets get lighter due to so-called stealth taxes – which mean people pay more into the Treasury without the Government having to raise tax rates.
On Thursday, the Chancellor set out to freeze the threshold at which people will pay a higher rate until 2028, while the threshold for the 45p rate was lowered to just over £125,000.
The report argued that these decisions, while aiming to protect the most vulnerable at a time of economic turmoil, raised questions of fairness.
It found that someone earning £62,000 per annum was likely to lose as much from the threshold freezes as someone on £124,000, but this would be twice as much as a share of their income.
The report added that the decision to raise council taxes was “very poorly targeted at those with higher incomes”.
It said as the Government’s energy support falls an average of 61 percent next year, “those with harder-to-heat homes or larger families will be particularly hard hit”, with nearly a quarter of homes facing bills over £4,000 in 2023.
With living costs expected to rise on the backdrop of economic gloom and take-home earnings shrinking, many may find it impossible to meet their mortgage demands.
In a bid to stem a tide of repossessions, Mr Hunt is reportedly toying with introducing new mortgages that would allow banks to loosen rules on repayments.
Under the plans, homeowners would be able to extend the time in which the mortgage is expected to be paid off, then shorten them down again once the economy recovers.
In the summer, Nikodem Szumilo, Professor in economics of the built environment at UCL, said that it was “very clear that the market is heading downwards” after a decade of growth, but said there were differing opinions over how quickly that drop would occur.
However, he told Express.co.uk at the time that he felt that it was more likely than not that there would be a “dramatic” correction.
Dr Szumilo said: “We expected the market to crash during the pandemic, because of a recession, because incomes were going to go down because people are going to lose jobs. A lot of this didn’t happen during the pandemic, but it seems to be happening now.
“The economic policies that the Government implemented delayed job losses, a recession and increasing interest rates. But clearly they didn’t stop them.
“All of this is happening now, and it is likely that this is going to affect the housing market.”