House price falls cancelled after Bank keeps rates steady

The Bank of England’s surprise move to hold interest rates has led analysts to cancel predictions of house price falls and boosted forecasts for next year.

Before the Bank’s Monetary Policy Committee meeting, the Centre for Economics and Business Research, a consultancy, had forecast a 2.4pc price drop in 2022. After the Bank opted to maintain the Bank Rate at a record low of 0.1pc, CEBR said it expected house prices to flatline at 0.2pc in 2022, followed by a 1.1pc drop in 2023.

But other analysts have become more optimistic about the market’s outlook. Capital Economics consultants forecast house price growth of 5pc in 2022.

Savills estate agents pencilled in a 3.5pc rise in 2022, and 13pc over the next five years.

Over this period, the north-south divide will narrow. Across the North West and Yorkshire and the Humber, values will climb 19pc, compared with respective increases of 5.6pc and 10.4pc in London and the South East.

Prime central London – the capital’s priciest postcodes – will be the ultimate winner as international buyers return. Savills has forecast 8pc price growth in 2022 and 24pc over five years.

Hybrid working patterns in the wake of the pandemic will continue to drive demand in suburban and rural areas. Prime regional house prices will rise 19pc in five years, Savills said.

But all forecasts signal an expected end to the heady levels of growth recorded during the pandemic.

Data from the Bank of England showed there were 72,600 mortgage approvals in September, the first month when buyers faced no chance of transacting in time to benefit from the stamp duty holiday. This finally came in line with the level recorded in February 2020, just before the pandemic, indicating that the market has returned to normal.

The tax break has ended and mortgage costs will rise as the Bank of England moves to tackle high inflation. CEBR expects the Bank Rate to increase from 0.1pc to 0.25pc in December and then rise in further increments to hit 1pc by the start of 2023.

Annual house price growth will slow from 10.1pc between July and September to 6.8pc in the last three months of the year, CEBR said, bringing overall growth at the end of 2021 to 8.9pc.

“The largest shocks caused by higher interest rates will be felt in the latter half of 2022 and through 2023,” CEBR said. Savills’ forecasts has assumed the Bank Rate will rise to 1.75pc by the end of 2027.

Andrew Wishart, of Capital Economics, said: “Affordability is crucial in determining whether a slump in the housing market is on the horizon.”

Mortgage repayments are currently equivalent to 39pc of the median salary. This is below the historical average of 43pc, said Mr Wishart.

A rise in the Bank Rate to 1pc would only push this level up to the long-term benchmark. “For the housing market to get into correction territory, either house prices would have to continue to surge, or the Bank Rate would have to rise to 2pc or higher,” Mr Wishart added.