House prices ‘to fall by 7% in next two years’

HouSE prices are heading for a sharp downturn as mortgage rates soar and the cost of living spirals, say experts.

Amid concerns that ‘a day of reckoning’ looms, analysts predicted falls of 7 per cent over the next two years.

The property market has boomed since the pandemic, with prices reaching record highs.

But signs of a slowdown are already emerging and forecasts for 2023 and 2024 are increasingly gloomy.

Last week the office for national Statistics reported a sharp drop in annual growth.

And figures from Halifax showed that prices fell in July for the first time in more than a year.

Experts said the crunch point will be this winter as household budgets are squeezed tighter.

It comes amid warnings that the Bank of England is poised to raise interest rates again next month.

The Bank’s benchmark rate is 1.75 per cent, but financial markets expect it to reach 3.75 per cent by the spring.

Analysts at Capital Economics forecast a two-year downturn, with house prices falling by around 5 per cent in 2023 and a further 2 per cent in 2024.

While a short supply of homes has so far underpinned prices, the research firm predicted that demand will plummet as rising mortgage rates, high inflation and a looming recession weigh on buyers’ budgets and confidence – causing housing market activity in 2023 to slump to its lowest level in over a decade.

‘Areas where house prices are highest relative to incomes are most vulnerable,’ it said. ‘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.

Falling prices should be good for first-time buyers. But rising bills mean many will struggle to save a deposit, while higher mortgage costs will restrict how much they can borrow.

However, some analysts remain optimistic. Anthony Codling, of property website Twindig, said: ‘We tend to overestimate the likelihood of bad things happening. House prices have fallen in only 16 out of the last 91 years.

‘Increasing living costs and rising mortgage rates are likely to temper house price growth.

‘But mortgage lending is based on a borrower’s income as well as interest rates and as pay rises the pressure on prices is likely to be up not down. once we have won the war on inflation we can expect prices to continue to rise.’

‘Overestimate the bad things’