UK house prices are destined to fall this year as consumer confidence slumps and rising interest rates make pricey mortgages harder for homebuyers to afford, according to economists
Pantheon Macroeconomics' Samuel Tombs predicts mortgage rates will continue to increase following incremental uplifts to the base rate of interest this year.
Mortgages “have a lot further to rise over the summer,” he said.
Monthly mortgage payments for the average borrower will be £300 higher in July than at the end of last year, according to Pantheon.
Berenberg’s analysts similarly predict that nominal house prices will “stagnate” as the economy contracts and unemployment begins to rise.
“Modest price declines in real terms look likely amid elevated rates of inflation,” Berenberg said in a note.
In the interim, house prices are expected to be buoyed by the relatively strong labour market and household savings made during Covid-19 lockdowns.
“A very early-stage bubble may have been in the making at the start of the year, but global headwinds have pricked it before it could blow up badly,” Berenberg said yesterday.
House prices have paradoxically continued to rise this year despite plummeting consumer confidence.
The latest data from GfK showed consumer confidence was at the lowest level since it started tracking the measure in 1974.
The UK Consumer Price Index inflation rose 9% in the year through to April and 9.1% in May.
Berenberg first noted in April that a large gap had started to emerge between consumer confidence and housing activity.
“Since then, the gap has grown larger still,” but the bank warned that since the same fundamental factors drive both consumer behaviour and housing demand, “this abnormal gap will close”.
Lucian Cook, Savills PLC (LSE:SVS) head of residential research, meanwhile predicted house prices will drop just 1% in 2023 in a call to Liberum on Monday.
Liberum’s analysts added that a supply “imbalance”, combined with macroeconomic challenges, will underpin future house prices and the market is unlikely to experience the sort of crash seen in the 1990s or 2008.
“The housing cycle will slow but not end, as the stock market is discounting, and build the argument here that forced selling is much less likely this time around, which strengthens the argument against a hard landing for house prices”
Berenberg predicts housing demand and prices will “return to solid growth” in 2023, avoiding a nineties or 2008-style crash in house prices.
The eighties housing boom was curtailed by a recession in the early nineties, and the subsequent good times were blown away by the subprime mortgage crisis in 2008.