The decline in house prices will continue over the next few months and throughout 2024, Lloyds Banking Group has predicted.
The lender, which is the largest mortgage provider in the UK, believes house prices will fall 5% over the course of this year and then fall by 2.4% in 2024. This means house prices will slump 11% compared to when they peaked last year.
Lloyds chief financial officer, William Chalmers said "there has been an increase generally in the housing market for a number of years to date, and so we're retracing a part of those steps."
Banking group Santander is predicting an even bigger fall in house prices for the year, dropping by seven percent, and it is anticipating a 2% fall in 2024.
Richard Donnell, director of Research at Zoopla, said previously "house prices would fall 22% by 2025 in real terms. We've got this huge hit to buying power, you've got all these generations getting less well off than the one before. Mortgage rates can't go any lower, they've gone up, let's assume they're going to stay at 4 to 5% for the next five or six years. The best house prices can do is rise in line with earnings or incomes, which might be one percent above inflation, but actually I think they're going to underperform inflation and earnings for the next three to five years."
The expert also said there were many "lead weights" that will keep down house prices, such as potential changes to EPC regulations that may increase the costs of owning a home.
Inflation remained at 6.7% in the latest figures for the year to September, with the cost of everyday essentials continuing to rise.
Mortgage rates are also falling to the relief of borrowers. Property expert Bola Ranson said previously "rates are likely to come down over the course of the next 12 months and certainly in the short term. If for example you go ahead and fix into a five-year product you could find yourself stuck on what will eventually be an expensive deal and be losing out. A two-year fixed rate could give you the comfort of knowing where you stand on a monthly basis yet give you the freedom to be able to switch onto what is likely to be a more competitively priced product at the end of the fixed two-year term."
Bank of England to keep interest rates on hold
The Bank of England is likely to hold interest rates at 5.25%, according to economists. The next base rate decision is set to be made on Thursday.
While the Bank has looked to raise interest rates to curb inflation in the past 12 months, doing so further would likely to have a worsening effect on mortgage holders, who are already struggling to cope with escalating rates. Susannah Streeter, head of money and markets, Hargreaves Lansdown, said “the ‘wait and see’ chorus appears to have been growing louder within the Monetary Policy Committee and given that the latest jobs data suggests a fresh cooling off in the labour market, policymakers are likely to keep rates on hold again, and wait for the previous rate hikes to take effect more fully. As more homeowners are forced to take on big increases in monthly mortgage costs as their deals come to an end, the effect of financial fragility is likely to show up in more frugal spending patterns and more uncertainty about jobs moves and reticence when it comes to pay demands.”
Sarah Coles, head of personal finance, Hargreaves Lansdown, said “mortgage rates have fallen slightly from a recent peak for the average 2-year rate of 6.85% at the start of August to 6.34%. However, they’re still a long way above the levels we saw in the spring – let alone the sub 2% rates so many people on fixed rate mortgages have come to rely on. The expectation that rates will hold for a considerable period may see mortgage rates come down slightly further. There are still some people in the market who think there could be another rise in the works, so if nothing materialises, this expectation will gradually filter out of prices, and rates come down a little. However, there’s not much of a rise priced in, so we won’t see them fall particularly far.”
James Smith at ING told Reuters “the Bank kept rates on hold in September and there hasn’t really been much data since then to change that position. With the data we have had – wages, inflation – wasn’t that different to what everybody expected, the bigger picture is the impact of previous hikes is still coming through.”
Major boost for buy to let mortgage range
There’s been a significant increase in the buy to let mortgage product range according to analysis by independent service Moneyfacts.
A year ago, there were fewer than 1,000 buy to let products available; but now there are over 2,500. In addition the service says that average fixed rates for BTL have have fallen month-on-month: the start of October saw the average rate for a two-year deal drop to 6.40%, down from 6.64% in September. Similarly, the average five-year fixed rate fell to 6.32 from 6.49% during the same months.
However Rachel Springall, finance expert at Moneyfacts, warns that “those coming off a two- or five-year fixed rate deal will need to find more funds to afford higher mortgage repayments”.
This is because the average two-year fixed rate has more than doubled since October 2021, when it sat at 2.92%. Meanwhile, back in October 2018, the average five-year equivalent was 3.40%.
She also acknowledges that some landlords may seriously be considering selling up, as margins continue to be hit by a cull in mortgage rate tax relief, tax changes for CGT and holiday lets, plus EPC requirements.