‘Gap in house prices and salaries will cause another financial crisis’

Homeowners typically have 29 percent more gross annual income than private renters. Those with higher incomes are also holding the bulk of the £180bn in extra savings that UK households have amassed during the pandemic.

The new dominance of fixed rate mortgages will protect the market from the immediate pain of rate hikes, Mr. Arnold added. In 2021, a fifth of mortgages were adjustable rate, up from 70 percent a decade earlier.

An increase in both pure home ownership and rents also means fewer households are exposed to the mortgage market at all. In 2005, 40 percent of households had a mortgage, compared to 30 percent in 2019-20.

Martin Beck of the EY Item Club said: “Interest rates have become a much smaller risk factor for house prices than unemployment.”

Unemployment is an important leading indicator for the housing market as it translates directly into forced sales. When people lose their jobs, they can no longer afford their mortgages and have to sell quickly. This is a looming risk as the prospect of a recession grows.

The Center for Economics and Business Research, a consulting firm, has already forecast a technical recession, expecting two consecutive quarters of GDP this spring and summer. She expects a corresponding increase in unemployment from 3.8 percent in the three months to April to 4.3 percent by the end of 2022.

Mr Arnold said: “If a slowdown in the economy causes unemployment to rise, it could cause house prices to fall.”

The cost of living crisis could also impact the broader housing market in other ways. If tenants cannot pay their rent, landlords could be forced to sell, which in turn could depress house prices, the report said. ‘Gap in house prices and salaries will cause another financial crisis’

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