House prices heading for a fall

If we are right that the Bank of England will have to raise interest rates to 3.00% to stamp out inflation then we are on the cusp of the fastest increase in mortgage rates since the late 1980s. That caused house prices to fall by 20%. But the tight labour market, lower loan-to-value ratios, and a lower peak in interest rates mean the drop in prices should be less dramatic this time. We expect house prices to fall by 5% over the next two years, reversing a fifth of the increase since the pandemic began.