Renewed falls in activity and house prices imminent

Our forecast that the Bank of England won’t start cutting interest rates until the second half of 2024 means mortgage rates are likely to stay between 5.5% and 6.0% for the next 12 months. That will price many buyers out of the market, and lead to a further slump in mortgage lending and transactions. Moreover, as high mortgage rates bear down on the amount buyers can borrow, while the number of homes for sale increases from the extraordinarily low levels of 2021-22, a further leg down in house prices seems inevitable. That said, strong pay growth and a trend towards longer mortgage terms mean prices probably won’t fall quite as far as we previously expected. We now anticipate a 10.5% peak-to-trough fall in house prices, of which 4.5ppts has already happened.