A mortgage expert is warning that a housing market crash now looks ”inevitable” as expectations run high of what many be a bigger-than-expected rate rise today.

Yesterday the government announced that the headline rate of Inflation in the UK remained at 8.7 per cent in the year to May, the same figure as April. Rising prices for air travel, recreational and cultural goods and services were blamed for the largest individual price rises; food and non-alcoholic beverages costs rose in May as well, but by less than in May 2022.

However, the really bad news was that so-called ‘core’ – a key measure which strips out energy, food, alcohol, and tobacco – rose by 7.1 per cent in the year to May. That is the highest since March 1992. Core figures are typically considered to carry the most weight when the Bank of England looks at the state of the economy.

Now this inflation concern has prompted a prominent mortgage broker to say a housing crash is on the way. 

Jamie Elvin, director at Strive Mortgages, says: “The challenge of tackling inflation has been massively underestimated by the government. Now, it is over to the Bank of England to react, which will almost certainly pile further misery on borrowers as rates go up again. It’s the perfect storm right now and the future feels bleak. 

“Expect the base rate to rise to 5.5 or 5.75 per cent by the end of the year. It’s a ticking time bomb as 1.4m borrowers will see an end to their low fixed rates this year and the impact will be beyond words. I fear for the property market, and a crash seems inevitable at this point.”

Not every analyst forecasts a crash but there is near-unanimity that the Bank of England will announce another base rate rise this lunchtime.

Sarah Coles, from business consultancy Hargreaves Lansdown, says: “For anyone with a variable mortgage, the likelihood of another rate rise means yet more pain. Plenty of those who moved onto a variable deal when their fixed rate expired had expected rates to have started to ease by now, so there’s a growing risk of rises that people hadn’t expected and cannot afford.

“For anyone looking for a fixed rate, the picture is even bleaker. It has already been a torrid few weeks, as mortgage rates have shot up. The market is pricing in several hikes over the coming months. 

“Just ahead of the announcement, it was expecting rates to peak at 5.81 per cent in February, and only start to fall gradually from there. This has pushed the average two-year fixed rate mortgage over 6.0 per cent. Higher core inflation is likely to reinforce the market’s conviction that rates will need to go significantly higher, and could power even higher rate expectations further down the line. Even the concern that rates could rise would bring more mortgage misery for anyone looking for a new deal or facing a remortgage.”

Meanwhile Chancellor Jeremy Hunt will tomorrow hold what some are calling an emergency summit with mortgage lenders. 

Hunt has already dismissed calls for tax incentives to be reinstated on mortgage borrowers and has ruled out other possible measures to help borrowers which may, he believes, indirectly fuel inflation. 

There is an agreement between banks, regulators and the Treasury that mortgage lenders are required to offer tailored support to those struggling to pay – this is considered to be the main issue to be discussed between Hunt and lenders tomorrow.