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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.
Andrew Wishart Senior Property Economist
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Withdrawal of affordability test is a wise move

We suspect that the main reason for the hasty withdrawal of the Financial Policy Committee’s mortgage affordability test is that it was on course to become a severe constraint on many buyers’ financial firepower. If left in place, it could have led to a far larger house price fall than the 5% drop we forecast.

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RICS Residential Market Survey (Apr.)

The housing market shrugged off the effects of rising mortgage rates and the cost-of-living crisis in April as intense competition between buyers bid up prices further. However, with mortgage rates set to increase sharply over the rest of the year, the days of the pandemic house price boom are now numbered.  

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RICS Residential Market Survey (Apr.)

Rising mortgage rates not yet hurting demand The housing market shrugged off the effects of rising mortgage rates and the cost-of-living crisis in April as intense competition between buyers bid up prices further. However, with mortgage rates set to increase sharply over the rest of the year, the days of the pandemic house price boom are now numbered.The rise in…

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Halifax House Prices (Apr.)

In contrast to Nationwide’s measure of house price inflation, there was no sign of house price growth slowing in the Halifax figures for April. But with mortgage rates only just starting to climb to reflect the Bank of England’s ongoing rate hikes, house price growth will slow sharply later this year. UK Housing Drop-In (10th May 10:00 BST/17:00 SGT): Economists from our property team are hosting a 20-minute briefing to explain why we think UK house prices are heading for a fall – and how bad the fallout will be. Register now.

6 May 2022
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