House price falls are imminent as soaring mortgage rates and spiralling living costs finally catch up with the housing market, experts have warned.
The crunch point will hit at the end of this year and bring a year-long downturn in 2023, with prices falling by 4pc, according to the Centre for Economics and Business Research, an analytics firm.
But the hit could be far worse if the looming recession brings soaring unemployment, while ever-increasing inflation pushes the Bank of England to continue raising interest rates.
Andrew Wishart, of Capital Economics, a research firm, said: “The historical record shows that increases in interest rates of the scale that we are seeing now are always a precursor of house price falls.”
Capital Economics has forecast a two-year property market downturn, with price falls of between 5pc and 10pc by the end of 2024.
Whatever happens, the blow will be unequal – with certain areas and parts of the market hit far worse than others.
Transactions are going to tank
Estate agents are feeling pessimistic about the state of the market. In July, their expectations of property sales over the next 12 months reached the lowest level since March 2020, according to the Royal Institution of Chartered Surveyors, a trade body. That was when the housing market was shut down for the first time in history.
Excluding that lockdown low, the July forecast was the worst on record in the Rics dataset, which goes back to 2012.
This followed three consecutive months of plunging buyer inquiries. Agents expect house prices will flatline over the next three months.
As mortgage rates continue to rise, the market will slow. Richard Donnell, of property website Zoopla, said: “The biggest casualty will be turnover.” He has forecast that in 2023 there will be around 1.1 million transactions, which is 200,000 fewer than this year.
“Transactions will fall, and then I think it will take six months for sellers to realise and for asking prices to come down,” said Mr Donnell. “I just think everything will flatline. Next year I think we will see house price growth at 0pc, or maybe falls of 1pc or 2pc.” In some areas, the drops could be closer to 5pc, he added.
First-time buyers will be wiped out
Sales are already falling fast – but only at the lower end of the market. In July, agreed sales of homes worth less than £100,000, and those worth between £100,000 and £200,000 collapsed. Compared to 2019, each price bracket recorded a drop of 33pc and 20pc respectively, according to data from TwentyCi, an analytics firm.
London and the South East will be worst hit
Any house price falls will be focused in certain areas, where people’s finances are more stretched by mortgage repayments and rising energy bills are eating up a greater proportion of disposable income.
Martin Beck, of the EY Item Club, an economic forecaster, said: “There is a distinction between first-time buyers and older homeowners. The pain of the cost of living crisis will really be felt by lower income groups.”
More expensive properties, whose buyers are less dependent on the mortgage market and who have more savings, are more likely to hold their value. “But the properties for first-time buyers might see outright falls,” said Mr Beck.
The areas where affordability is already most stretched – namely London and the South East – are the areas that are most dependent on mortgage lending and are therefore the places likely to see the biggest property market slowdowns, said Mr Donnell.
“Inner London boroughs have already been underperforming. In real terms, prices in London are falling at speed,” said Mr Donnell.