Surge in mortgage rates makes house price falls likely

We have previously argued that a mortgage rate of above 6% represents the threshold at which house price falls become likely. With rates recently rising above that level, we are therefore revising down our house price forecast. That said, the prevalence of fixed rate mortgages, tight credit conditions and a relatively healthy labour market still rules out a price crash. We now expect annual house price growth will fall to -5% by mid-2023, followed by a gradual recovery to 3% by end-2024.