HSBC warns of ‘wave of forced sales’ as mortgage costs jump by £5,000 a year

Watch: UK economy: Surge in mortgage approvals

High street bank HSBC has warned that forced sales are a growing risk as mortgage repayments will rise by up to £5,000 a year.

Mortgage rates had already surged above 4pc before last week’s mini-Budget and a rise to 5.5pc is now an “imminent possibility”, the bank said.

Households coming to the end of a fixed-term deal will soon face increases of around £5,000 a year. Before Chancellor Kwasi Kwarteng’s statement last Friday analysts were expecting repayments to rise by £3,500.

Higher rates are expected to lead to a drop in demand from first-time buyers who will not be able to afford to get on to the property ladder. The fall will push down house prices by an estimated 3pc next year and 1pc in 2024, HSBC said.

Chris Hare, senior economist at HSBC, said: “We are increasingly concerned about the possibility of spiralling mortgage costs leading to a wave of forced sales, triggering a broader, deeper, and more prolonged slump.”

He said the economic impact will be drawn out because five-year fixed deals, which are becoming increasingly popular, will delay the pain for some households.

The average borrower is shielded from rate rises for more than three and a half years - three times longer than a decade ago.

Household incomes are expected to fall in real terms over the next two years, but the delayed impact for some households may mean it takes longer for inflation to drop.

The hit to household incomes is forecast to be £55bn if mortgage rates are around 5.5pc, and £40bn if they run at a “fairly sanguine” 4.5pc, Mr Hare said.

HSBC made its predictions based on expectations that the Bank Rate would climb to 4.25pc, but the pain will be even worse if the rate reaches market expectations of 5.75pc.

Every 1 percentage point increase in mortgage rates is expected to add around £1,500 a year to average repayments. Some mortgage lenders, such as Nationwide, are already offering mortgage rates in excess of 6pc.