Home prices to fall but no crashes predicted

British home prices are going to fall but won't come crashing down, Reuters polls show.

A crash in British home prices is unlikely but they will dip further this year as the cost of living crisis and increasing borrowing costs take their toll on indebted buyers, a Reuters poll showed.

When the COVID pandemic hit the world, home prices soared as buyers sought more housing and took advantage of lower interest rates, but with high inflation proving stuck, the Bank of England embarked on an aggressive rate hike path and is likely not done yet.

Average house prices were expected to fall a modest 3.0% over 2023, less than the 2.4% drop predicted in a February poll, but nowhere near the crash some were expecting. The lowest forecast was a 10.0% drop.

They are expected to flatline in 2024 and rise by 3.1% the year after. In the past poll, they were predicted to rise 1.0% next year and 3.5% in 2025.

The majority of pundits and doomsters are being proven wrong - it is not an edge of the cliff moment. Yes, prices will fall this year, but by single digits, Williams said in consultancy Building Value.

From peak to trough, home prices will fall 7.5%, the median in the polls. The predictions ranged from a drop of 4.3% to a drop of 17.5%.

Persistent core inflation and wage pressures will prevent the Bank of England from cutting interest rates by 2024, which means mortgage rates won't fall any further until next year, said Andrew Wishart, head of Capital Economics.

While interest rates are lower, the excessive amount of mortgage borrowing will prevent a return in demand, lending, and sales until demand and lending rates are reduced. Since December 2021, the BoE has made 12 consecutive increases to the Bank Rate, resulting in 4.4 percentage points in the sharpest increase in rates since 1989.

Currently, it is 4.50%, and a separate Reuters poll suggested it would peak at 5.00% next quarter. Markets are in a peak range of around 5.25% - 5.50%.

The lender Nationwide said that rising borrowing costs - already at a level not seen in almost 15 years - meant house prices fell on average 3.4% in the 12 months to May, the most since 2009.

Lenders also approved fewer loans for house purchases in April than in March, the number of new mortgage lending also dropped, according to BoE data that added to signs of a slowdown in the housing market.

When asked what was more likely for this year's home prices, two thirds of respondents to an extra question, eight of 12 said it was a downturn. The other four said they were experiencing an upturn.

A significant downturn is unlikely, but a decline in values is more likely than a recovery in values, said Michael McGill, head of CBRE's real estate division.

Britain's largest housebuilder Barratt Developments said the economic backdrop remains tough but did report improving buyer interest.

The capital, once a hub for foreign investors but hit by Brexit and COVID, will drop 3.3% this year, before increasing 0.2% in 2024 and 4.0% the following year, the survey found.

Property consultant Russell Quirk said the capital's housing market has been more impacted by political, economic and pandemic turmoil than the other regions, and has seen a decrease in values over the past few years.

However, London will always be London when property investment sentiment is concerned over the medium to long term, and we can expect to see the market here spring back to life.