Foreign investors in UK property could take flight, causing values to fall further, the Bank of England has warned.
Its 115-page Financial Stability Report puts flesh to the comments made by its governor that there would be “consequences” from the decision to rapidly increase interest rates.
It said commercial real estate in the UK was less exposed despite values falling by almost one-fifth since their peak last year.
This is because, compared with the crisis of 2007-08, “there has been a reduction in the aggregate amount of leverage used by investors in UK CRE and less reliance on UK bank funding”.
However, the BoE noted that since the last financial crisis a “major structural change” in Britain had involved the rise of overseas investors in commercial property. It warned “foreign investors might be more likely to react sharply to a market stress in UK CRE and retrench, which could amplify potential risks related to leveraged investors and open-ended funds”.
But there will be significant “consequences” for residential property.
A million mortgage holders will have seen costs spike by at least £500 a month by Q4 2026, the BoE has predicted.
The bank said about 650,000 households would spend more than 70% of their post-tax income on mortgages and other essentials by the end of this year, raising the likelihood of slipping into arrears or falling into default.
Buy-to-let landlords also face pain, with their monthly payments forecast to rise by about £275 on average by the end of 2025.
