Top Economist: The Unthinkable Is About to Happen to House Prices in the UK

Added: 2026-05-20

[00:00:00]I've got to first remark that there's no reason for banks to put up interest rates because bond prices rise. This appears to most people to be as if they've got to pay more money for what they're lending, but in fact, banks are recipients of income from those bonds.

[00:00:15]They are not need they don't need them to finance. They actually make money out of higher interest rates. Nonetheless, that's what they do. And as those mortgage rates get pushed up, many people are going to find they can't support the mortgages they have. This is because if you take a look back to the 1970s, house household prices were 1/5 what they are now in real terms. So, it's five times as expensive to buy a house as it was back then. And of course, the service the debt servicing costs are much much higher. So, a lot of people are going to be given severe difficulty from this.

[00:00:47]And of course, that's not the only damage they're facing from this crisis.

[00:00:51]And two-year fixed rates in Britain have moved from under 4% to just over 5% in a matter of two months. Are we looking at a significant correction in UK housing prices as millions face an imminent remortgaging shock?

[00:01:07]I think that's inevitable now. As just I've said, house prices have been driven up by frankly by enabling banks to lend too much money for buying houses, which has basically made existing houses more expensive. It certainly hasn't increased the supply of housing, which is the myth that was sold to us by Reagan and Thatcher all those decades ago. But, this has been rising rising rising with rising levels of mortgage debt propelling the prices higher. Now, we're going to find that no longer possible to service that debt. So, I think this is the beginning of a long overdue house price correction. And given that central banks aren't actually raising interest rates right now, how much of this current mortgage spike is driven by real inflation data versus sheer panic pricing in the global bond markets?

[00:01:57]Well, the global bond markets are delusional as usual. In fact, they they haven't priced in enough of the potential danger to the financial system out of what the Strait of Hormuz has done. Home Sorry, they they haven't factored in enough of the damage that shutting the Strait of Hormuz is having on the productive capacity of the planet, and that's going to get much worse in the next four to six weeks. So, the bond markets, yes, they're driving the overall situation in terms of the cost to borrowers, but they're delusional about the actual factors involved in causing this crisis.

[00:02:31]And looking at Eurozone mortgage costs, if they continue to climb by another 30 to 50 basis points, what's the risk of a systemic credit slowdown across the blocks' major commercial real estate portfolios?

[00:02:46]I think that's a given. I mean, we still haven't seen the impact of the Strait of Hormuz closure on the production system of the planet given the huge time lags between tankers fueling fueling up in the Strait and then in the Gulf of the Persian Gulf and then traveling to where they unload those cargoes, but that's about to hit. This war this ridiculous war has been going on for more than two months now. Those supply chains are being terminated, and at that point we're going to see the impact on the capacity of people to service their debts, whether they're individual with the mortgages or companies with corporate debt. They will no longer be able to sell the goods and services that generate the revenue from which they pay those they service those debts. So, we're going to see a major financial crisis coming our way as little in the next as I said six four to six weeks.