There were fresh warnings of a slowdown in home construction after the number of people struggling to pay mortgages was forecast to hit a 15-year high.
September home sales hit their lowest level since the peak of the pandemic, the Royal Institute of Chartered Surveyors (RICS) said.
Rising mortgage rates will push home prices lower this year, she warned.
On Wednesday, the Bank of England said the number of people struggling to pay mortgages will rise sharply over the next year.
New homebuyer inquiries fell in September, marking the fifth consecutive month that they had fallen, to Rics.
It said there continued to be fewer properties for sale, which had helped push house prices up marginally, but warned that this was likely to end.
Rics chief economist Simon Rubinsohn said while house prices are still rising, “storm clouds” are gathering over both pricing and sales.
“It’s difficult not to imagine further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labor market begins to reverse,” he said.
“Right now, mortgage arrears and possessions remain at historic lows, but they will inevitably move up over the next year as pressure on homeowners mounts,” he added.
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“However, with lenders being much more cautious this cycle and high-value-to-value mortgages making up a much smaller proportion of the loan book than in the past, this should help limit the negative impact on the market. “
Mortgage rates, which had been rising since the Bank of England began raising rates in December, soared after the government’s mini-budget in September alarmed investors.
The promise of huge, unfunded tax cuts has fueled expectations that the bank will have to raise interest rates more aggressively than previously thought, and mortgage lenders are pricing their loans accordingly.
On Wednesday, the average interest rate for two-year fixed-rate mortgages hit 6.46%, according to researcher Moneyfacts, while the average interest rate for five-year fixed-rate mortgages was 6.32%. Both rates are the highest since 2008.
The Bank of England said many households would struggle if interest rates rose as high as the market had expected, hitting both mortgage holders and renters.
Currently, around 1.7% of UK households – or 475,000 – are in a position where they are more likely to face repayment difficulties. It defines this as spending more than 70% of their income on mortgages or rent and basic necessities.
However, she expects the percentage to rise to 2.8% – or around 800,000 households – by the end of next year.
“Increases in the cost of living and interest rates will put more pressure on UK household finances and make households more vulnerable to shocks,” the bank’s Fiscal Policy Committee said in a report on Wednesday.
“Some may find it harder to pay off debt,” she added, unless they can make significant spending cuts.
However, it also means that households are better able than they were then to deal with financial stresses because they have less debt in relation to their income.
The proportion of people with high loan-to-value ratios is also significantly lower.
“This reduces the risk of default and banks must now react flexibly,” the bank said.
It predicts that around 1.7 million of the country’s approximately 11 million mortgage holders will need to refinance their loans in the coming year, which will result in much higher interest rates.
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