For years, home ownership in Britain has been a one-way bet. Prices have climbed steadily since the global financial crisis, rising in even larger increments after the pandemic began. Fueled by a post-lockdown buying frenzy, the average UK house price hit a record £275,000 ($315,474) in December, a £27,000 increase on the previous year’s high. People buying houses for the first time benefited from cuts to taxes on their purchases and even though homes were more expensive, rock-bottom mortgage rates kept monthly payments affordable. Prices have risen every year since 2012, when they dropped by 1.1%, according to data from Nationwide, a major mortgage lender. Now, that boom is over. It was already fading well before Liz Truss and Kwasi Kwarteng blew up the UK bond market and sent borrowing costs through the roof. But the financial market turmoil sparked by the former prime minister and her then finance minister’s plans for unfunded tax cuts made matters much worse. The sharp and sudden increase in mortgage rates that followed has made it much more expensive to buy a house, leading some forecasters to predict a 10%-15% plunge in prices over the next year or so. Even though most of Truss’ tax cuts have been ditched by new finance minister Jeremy Hunt and Prime Minister Rishi Sunak, calming bond markets, the era of cheap debt that helped drive house prices ever higher is coming to an an end. On Thursday, the Bank of England increased its key interest rate by three quarters of a percentage point — it’s biggest hike in 33 years — taking it to 3% from near zero at the end of last year. That’s the highest level since November 2008. That will keep mortgage rates elevated, even if not at their current inflated levels. “I think all that can happen in the short term is that we go back to where we were at the end of August,” said Tom Bill, head of UK residential research at broker Knight Frank. “There’s a bigger, wider psychological shift that has to take place after 13 years of ultra-low borrowing costs and the housing market readjusting to mortgage rates that are not below 1% or 2%.” How did we get here? UK mortgage rates have been ticking upwards since spring, in line with rising interest rates. But Truss and Kwarteng’s “mini” budget of Sept. 23 kicked those increases into overdrive. “The mini budget added a whole percentage point onto mortgage rates,” said Richard Donnell, executive director of research at online property portal Zoopla. The promise of sweeping tax cuts but no plan to pay for them caused a bond market rout that pushed up borrowing costs for lenders. “The biggest immediate impact was the accelerated pace of change in mortgage rates,” said David Hollingworth, associate director of communications at broker L&C Mortgages. Within days, lenders pulled over 1,500 products and more than half have still not returned to the market, according to financial product comparison website Moneyfacts. Even though Kwarteng and Truss are out, along with most of their tax cuts, mortgage rates have still not fallen back to where they were before the pair unveiled their doomed economic plan. Average two-year and five-year fixed rates stood at 6.47% and 6.32% on Tuesday, levels not seen since 2008. That compares with around 4.75% before the “mini” budget, according to Moneyfacts. For a typical borrower, with a mortgage worth 70% of the price of their home, that would increase monthly repayments by £500 ($574), according to Donnell. The dramatic rates reset has seen some homeowners spend thousands of pounds to refinance early for fear that rates could climb higher still. Karam Heer, a tax adviser based in London, decided to refinance his two-year fixed mortgage a year earlier than planned, taking his rate from 1.75% to 3.57%. That will cost him an extra £375 ($424) a month until January 2028. “We haven’t had a choice really,” he said. Even though it cost him £4,500 ($5,162) to switch deals early, Heer wanted the certainty of a fixed rate because, as he told CNN Business, “I have absolutely no clue what’s going to happen with interest rates.” Tudor Nanu and his wife, who bought a house in February, are considering doing the same. The health care workers in southeast England are preparing to take a £6,000 charge ($6,883) to refinance early at a rate almost double what they had been paying. The higher rate would cost them an extra £500 ($574) a month, on top of the one-off refinancing hit. Government bond yields fell back in October and swap rates — a gauge of bank funding costs that are used to price mortgage rates -— are also falling. That means mortgage rates are likely to come down in the next few weeks. Still, there’s no returning to the “ultra-low levels of recent years,” said Donnell, who thinks mortgage rates of 4% to 5% will become the new norm. That will come as a shock to millions of homeowners who bought houses when rates were much lower. According to Bill at Knight Frank, more than 4 million mortgages have been issued to first-time buyers since 2009 when rates “hit the floor.” “So there’s a lot of people out there who don’t appreciate what it’s like when their monthly outgoings rise,” he told CNN Business. As many as 1.8 million borrowers on fixed-rate mortgages will have to refinance next year, according to the Resolution Foundation, a think tank. Neal Hudson, a housing market analyst at research firm BuiltPlace, estimates that about 300,000 fixed-rate deals will come to an end between October and December. “As more buyers come up against the reality of monthly mortgage bills rising by hundreds of pounds, the financial pain will spread through the housing market,” Bill added. House price falls ‘inevitable’ Signs of a slowdown are already starting to emerge, as banks take a more cautious approach to lending and aspirant home buyers delay purchases in the face of much higher borrowing costs. UK house prices fell 0.9% between September and October, the first decline in 15 months, according to data from Nationwide. The average house now costs £268,282 ($309,396). Mortgage approvals also declined to 66,800 in September, from 74,400 in August, data published Monday by the Bank of England showed. Zoopla’s Donnell said demand from new buyers has fallen 30% since the Truss budget. “Straight after the mini budget there was a scrabble to do deals, now sales are still happening but at a 20% lower run rate than they would be normally,” he said. Alan Edwards, a local government worker from the north of England, was about to start house hunting, hoping to buy early next year, until the mini budget caused mortgage rates to spike. “I can’t see that happening now,” he told CNN Business. Edwards expected rates to rise over the next few months, but not “this fast this quickly,” he said. “We’ve really got to pay attention to the government now because they can drive our costs up by having a bad week of their own making.” Those who do buy won’t be able to borrow as much, which will knock prices. Take, for example, someone who a year ago could afford to put £1,500 ($1,700) a month towards a 25-year mortgage. At an interest rate of 1.75%, the low reached in September 2021, that person could have borrowed £378,000 ($433,000). Today, at an interest rate of 5.5%, the monthly payment is enough only for a £244,500 ($280,000) mortgage. A drop in buying power makes a significant drop in house prices inevitable, according to Andrew Wishart, a senior economist at Capital Economics. The consultancy expects prices to fall between 10% and 15% between now and 2024. Credit Suisse has made a similar projection. That’s a wider problem for the UK economy, given that 36% of household wealth is tied up in property, according to data from the Office for National Statistics. When house prices fall, homeowners feel less confident about their personal finances, causing them to cut back on spending and hold off on making additional investments. Homeowners may already be shoring up their finances, saving more in anticipation of higher mortgage payments. Households deposited an additional £8.1 billion ($9.3 billion) with banks and building societies last month, compared with £3.2 billion ($3.7 billion) in August, the biggest increase since June 2021, according to Bank of England data. Even if house price declines simply take prices back to where they were before the pandemic-induced buying spree, it will still hit the UK economy hard, because many sectors of the economy, from financial services and construction to moving companies and furniture stores, rely on a strong and active housing market. Analysis by Knight Frank and the British Property Federation in 2020 found that for every 100,000 housing transactions involving existing homes, the UK economy benefited to the tune of almost £1 billion ($1.14 billion). “Higher debt payments, falling property prices and a slump in construction will play a major role in dragging the economy into recession,” Wishart said.