Around the world, soaring borrowing costs are squeezing homebuyers and property owners alike.
From Sydney to Stockholm to Seattle, buyers are pulling back as central banks raise interest rates at the fastest pace in decades, sending house prices falling. Meanwhile, millions of people who borrowed cheaply to purchase homes during the pandemic boom face higher payments as loans reset.
The slowdown is a stark turnaround from a boom fueled by central banks’ easy-money policies in the years after the financial crisis and then supercharged by a pandemic that sent people searching for bigger spaces and remote-work-friendly homes. Now, many people who paid record prices face loans due to reset higher just as soaring inflation and a potential recession hit.
New Zealand, where prices rose close to 30 per cent in 2021 alone, is something of a poster child of the pandemic housing boom — and its unraveling. The central bank has hiked interest rates seven times in the past 10 months and house prices were down 11 per cent in July from the peak in November last year, according to the Real Estate Institute of New Zealand. Economists predict they may eventually drop as much as 20 per cent.
“Given that the housing affordability crisis is very serious in many major economies, cooling house prices may result in some positive effects,” said Kwan Ok Lee, who specializes in housing at the National University of Singapore. And in Poland, where monthly payments for some borrowers have doubled as rates rise, the government stepped in earlier this year to allow Poles to suspend payments for up to eight months. The move wiped out profits of major banks after the industry was forced to book about 13 billion zloty in provisions.
About 1.8 million UK borrowers are due to refinance in the next year. Most vulnerable are the first-time buyers who bought homes as prices spiraled during a stamp duty tax holiday introduced in summer 2020 to bolster the market during the pandemic. Those who fixed for the short term face significantly higher repayments at a time when real wages are falling at a record pace and the cost of living is soaring.
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