The outlook for new buyers is also: get much worse because interest rates are now rising rapidly, Mr Wishart added.
For most of 2021, the bank interest rate was a record low of 0.1 pc. The main reason why house prices were able to rise so quickly despite relatively slow wage growth was that mortgages were relatively cheap due to low interest rates.
But since December, the Bank of England has taken five consecutive decisions to raise bank interest rates, which are now at 1.25 percent.
This is expect to rise again, or up to 1.5 pc. or up to 1.75 pc, when the Bank takes its next decision in August. Mortgages will become even more expensive.
According to Capital Economics, the average first-time buyer had to spend 35 percent of their income on mortgage payments in 2020. Because the interest rate was so low, it was below the long-term average.
But as interest rates rise, Capital Economics expects average mortgage rates to rise from a low of 1.5 percent to 3.6 percent. “That means a first-time buyer will have to spend 47 percent of their household income in 2023 to pay their mortgage,” Wishart says.
Existing homeowners will also face much higher costs if they want to move or renovate, he added.
The burden of higher interest rates will come as inflation and tax hikes hit real incomes and committed expenditures, meaning buyers are unlikely to be able to take out larger mortgage loans either. In Wales, the average home cost six times the median disposable income, while in Scotland the ratio was 5.5.
If unemployment rises, inflation persists and the Bank of England has to raise interest rates further, the blow to the housing market could be much greater. “If the bank interest rate reached 5 pc, the overvaluation of houses would be very similar to that in 2007,” said Mr Wishart. At that time, house prices fell by 18 pc.