Property sales are collapsing and banks are cutting valuations by tens of thousands of pounds after the mortgage market descended into chaos this week.
Lenders are reneging on offers and agreements in principle as interest rates soar, meaning buyers who were on the cusp of getting a mortgage have been forced to pull out of sales or reduce their offers, estate agents and mortgage brokers have warned.
Ian Wyn-Jones, an estate agent in North Wales, said 20 sales had fallen through this week as a direct result of soaring interest rates.
He said: “I have never seen it like this. That’s 20 households who have had their life turned upside down in a matter of days.”
Mr Wyn-Jones said some of the sales collapsed because lenders withdrew agreements in principle, a precursor in the application process which gives a buyer an idea of how much they can borrow, after they pulled mortgage deals from sale.
“To see lenders going back on a mortgage offer is a rare but really scary thing. We have also been contacted by people wanting to put their home on the market and downsize because they can’t afford the repayments anymore.
“These aren’t older couples who are moving into more manageable properties, it’s families who simply can’t afford their homes anymore,” he added.
A lender can withdraw a mortgage offer at any time before a sale’s completion, although it is rare and usually reserved for cases where there has been a significant change in circumstances or a legal problem has arisen.
Banks are more likely to pull an agreement in principle, which is a less formal indication of how much a buyer can borrow.
Allan Fuller, an estate agent in London, said a buyer had her agreement in principle withdrawn this week because rates had risen so much she could no longer afford to borrow the initial amount.
Mr Fuller said: “She had already had an offer accepted at £375,000 by the buyer, but when she went back to the bank they reduced the amount they were willing to lend. She’s now had to offer £10,000 lower, which fortunately the seller seems happy to work with.
“We currently have three deals hanging in the balance because of rate rises this week, the property world has truly been turned on its head. I’ve never seen anything like it in my almost 50 years in the market.”
Estate agents have warned the market is at a “tipping point” as higher rates squeeze borrower affordability and limit how much they can offer for a property.
Research by property website Zoopla this week found buyers would have to cut offers by tens of thousands of pounds if mortgage rates rose to 6pc next year.
This in turn will hit property values, with economists forecasting house price falls of up to 15pc if rate predictions materialise.
Mortgage brokers warned “down valuations”, where a lender’s surveyor values a home at less than the buyer has offered, have already begun.
Jamie Lennox, of broker Dimora Mortgages, said one lender had this week down valued a property by £40,000 – equivalent to 12pc of the proposed sale price.
Mr Lennox said: “We may see more in the weeks to come. Clients are also becoming more concerned about a looming recession and the impact of potentially buying a house at the peak of the market.”
If a lender values a property at less than a buyer has offered, the latter must pay the difference between the valuation and the agreed sales price in cash, or risk the purchase collapsing. As the housing market cools a growing number of sellers will suffer down valuations, experts warned.