In a stark warning issued by experts, house prices are heading towards a 7% fall as mortgage rates soar and the cost-of-living crisis continues to spiral further and further out of control.
The property market has been on an upward boom ever since the pandemic originally started reaching staggering record-breaking highs. However, there are already signs of a potential slowdown brewing.
This comes shortly after the Office for National Statistics reported a sharp drop in annual growth last week.
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Price Falls For First Time In Over A Year
The Office for National Statistics are not the only ones who are reporting a drop in prices. Figures from Halifax also point towards a potential slowdown as their figures for July show a fall in prices for the first time in more than a year.
This news comes as warnings that the Bank of England is set to raise the rate of interest again next month. Whilst the bank’s current benchmark rate is 1.75%, financial markets are expecting it to reach 3.75% by spring.
According to analysts at Capital Economics, there will be a two-year downturn in house prices with prices falling by 5% in 2023 and then a further 2% in 2024.
Housing Supply Issues
What has so far underpinned the house prices has been a short supply of homes, however with mortgage rates continuing to climb, high inflation, and a looming recession imminent, experts predict this will market activity to a slump in 2023 to its lowest levels in over a decade.
Analysts at Capital Economics have said that ‘Areas where house prices are highest relative to incomes are most vulnerable, London and the South East are likely to see the largest falls and the North and Wales the smallest.’ In the capital, house prices are expected to slump by 12 per cent over the next two years.
Richard Donnell, of property website Zoopla, said that if interest rates rise above 4 per cent ‘we would expect to see zero annual house price growth’, with ‘modest price falls’ if rates increase further.
Good News For First-Time Buyers?
Whilst the news of falling prices is a relief for first-time buyers, the spiralling cost of bills means that many may struggle to be able to save up for a deposit. This paired with the rising costs of mortgages means that it will restrict how much buyers can borrow.
What Does This Mean?
We spoke to Jonathan Christie, Co-CEO of The Property Buying Company about his thoughts on the expert’s predictions.
“Even with the cost-of-living crisis and rising mortgage rates, we tend to prepare for the worst-case scenario. The fact of the matter is house prices have only fallen in 16 of the last 91 years.”
“We have to bear in mind that despite the rising mortgage rates, they are still at an all-time low level, which means affordability is still there. Whilst there is a cost-of-living crisis and people are tightening their budgets, the lack of supply means that demand is still high. These factors are only going to moderate house price growth for the time being.”
This covers everything that you need to know about house price predictions. If you have any questions queries or insight into the subject, please feel free to get in touch!
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Alexandra is a junior content producer who enjoys writing articles and finding out more about the property market. Read more about Alexandra here.
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