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Will house prices fall? If so, by how much?

ended 04. November 2022

With the Bank of England predicting we are on the cusp of the longest recession since records began, rates set to rise further after today's 0.75% hike and even the Nationwide CFO telling the Commons Treasury committee house prices could drop by as much as 30%, we want to know by how much you think prices could drop. Please complete the snap one question poll >> here << and then explain your reasoning in your response to this alert. We will be issuing your comments and the poll results to the media tomorrow AM sharp.

15 responses from the Newspage community

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Dariusz Karpowicz
Director at Albion Financial Advice
I am not convinced that house prices will fall by as much as 30%, as some are predicting. That would be an apocalyptic event in the property market. Prices will undoubtedly stall and we could see drops of 10% in some areas but the lack of supply will act as a glass floor under property values. There is a significant shortage of skilled workers and labourers, which limits the number of homes that can be built, which in turn prevents prices from falling materially as there just aren't enough homes. Demand will drop off for sure, but there is an acute lack of supply.
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Natalie Hines
Founder at Premier One Mortgages
I am starting to see a clear slowdown in purchase activity so I'm fully expecting a drop in prices in the months ahead, but by how much is anyone's guess. I certainly don't think we'll see the 30% drop some are predicting, as that would put the entire economy on the brink, but a drop of some kind is inevitable. I work with a young demographic within the TV industry and they are waiting to see what happens following the latest interest rate announcements and ongoing cost of living crisis. A correction in house prices is what's needed to help get first-time buyers on the property ladder. For many first-time buyers, at present, prices are simply out of reach. A house price correction could give them the leg-up onto the ladder that they need.
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Andrew Simmonds
Director at Parker's Estate Agents
Since the summer, I’ve been telling vendors that their house is worth what it was worth 12 months ago. I’ve lost instructions because they’ve said “nah”. This is mainly because of deluded competitors who feed them bull. Plenty have since come back to me saying “you were right”. I’m expecting average prices to be down 20% by March.
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Hannah Bashford
Director at Model Financial Solutions
The past couple of years has seen house prices shoot through the roof, growing in double digits across the board due to the stamp duty holiday and the race for space triggered by the pandemic. This price growth was never sustainable and has ultimately proved a way of crippling the UK economy because people leveraged themselves up to the hilt on cheap money, and now money is no longer cheap. Add the cost of living crisis to the impending remortgage crunch and the only way house prices can go is down. I don’t believe that we will see a drop of 20%+ that some are predicting, as the economy would be on the verge of systemic collapse, with countless households in negative equity. But it's inevitable that prices will need to come down so that people can meet the affordability assessments. We operate in two of the most expensive areas in the UK, the South East and South Hams, and both have seen significant house price increases, especially in the South Hams with a number of people buying second/holiday homes during the pandemic. These houses may now become unaffordable if they are mortgaged and less profitable as an investment if people rethink their holiday budgets so we may see more housing stock in this area, which is greatly needed, but will bring down house values overall.
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Jon Halbert
Mortgage & Protection Advisor at Key Financial Associates Ltd
House prices falls are a nailed-on certainty. As demand for property drops off due to the Bank of England's rate hikes, sales will inevitably slump. But this alone will not reduce property prices. When people become desperate to sell and reduce the sale price of their home below that of the current market value, all the homes in the same street reduce in value to the same level. This is the domino effect that triggers house price falls. The rising cost of borrowing will force a growing number of homeowners to sell because their affordability on the new rates when they come to remortgage, coupled with the cost of living, will become impossible. Repossessions will also rise as a result of recent interest rate rises. If lenders relax their criteria around interest-only mortgages, many will be able to survive potential repossession. The biggest falls in value are always where the biggest rises where, typically in the south. Properties in the north will still be impacted but not as much, mainly because prices are on average lower. How far prices fall depends largely on the government's strategy to control inflation. In my opinion interest rate rises will damage what’s left of the high street first. Controlling long term fuel, energy and food prices should be the priority. This will help to control inflation, which in turn will allow a reduction of interest rates to stimulate the economy out of the predicted long recession.
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Mike Staton
Director at Staton Mortgages
While the base rate has increased again, I don't think it will have much impact on house prices as sales dropped last month due to ridiculously priced fixed rates. Lenders base their rates on Swap Rates, and these have been set at a rate of nearly 5% for some time. Now we are starting to see some light at the end of the tunnel with major lenders reducing their fixed rates. We may even see some of the buyers who waited to see what happened with rates return to the market. The only thing that is certain at the moment is uncertainty and making a guess at house prices is a mug's game. Claims of 20% and 30% dips are scaremongering tactics and unlikely to materialise.. I think 5%-10% is realistic. The good thing we are seeing at the moment is estate agents finally giving realistic valuations to their clients, rather than valuations fuelled by greed and poor sales tactics to win an instruction. Unfortunately, house buyers and vendors take estate agents' words as gospel as many have a great knack for pretending to be qualified surveyors and regulated, when in truth many are not.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Thursday of this week was a day to forget but I think that both the Bank of England and many predicting extreme house price falls are being overly negative. Without doubt we are in the jaws of a recession. It's going to be painful, people will lose their jobs and their houses. However, in six months' time, inflation will be under control, interest rates will be high enough that a significant cut will stimulate growth and I expect a General Election will usher in a new government with fresh ideas. In the meantime, house prices will fall. We have already started to see that this week. Estate agents in the capital have been hit harder than the rest of the country as higher rates affect these transactions more as the values are that much higher. Interests rates got hiked by the biggest amount in over 30 years this week, and more rises are likely over the next six months. I expect this to really dent the London property market. The more affluent agents, such as Knight Frank and Savills, have predicted a crash of 10% in London but I think it could be worse than this. I expect, in some areas, prices to fall by double this and transaction levels to reduce by over 50% as homeowners refuse to accept the new value of their home. The rest of the UK will see a drop of less than this as affordability is better and there will be fewer cases where property sales are forced. Over all, I expect average UK prices to drop 10% drop in six months and then stabilise before recovering quickly.
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Riz Malik
Independent Financial Adviser at R3 Wealth
If the housing market drops 30%, as some are predicting, Rishi can forget winning the next General Election and may as well join Matt Hancock on I'm a Celebrity. Regardless of how he performs against any other metric, he will be handing the keys to Number 10 to Keir Starmer. The number of people facing negative equity and repossessions would go through the roof. Our new PM is a clever guy. If anyone can find a solution to our current predicament that has been exacerbated by she-who-must-not-be-named, and he-who-wasn't-around-for-long-either, it is Rishi.
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Craig Fish
Director at Lodestone Mortgages
Without doubt house prices are going to fall. However, I don’t believe that we are going to see falls that correlate with the horror headlines that mainstream media are reporting. Over the past two years, property prices have grown beyond where they should have and I believe that any drop we see is simply going to be a correction back to the prices we saw in 2019/2020. Let’s not forget that no government has solved the deep housing shortage from which the UK suffers and, as such, over the long term property prices will always hold up and increase.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
My own personal opinion is that we may see the mammoth gains in house prices of the last two and a half years wiped out as the market equalises itself. That 10%+ annual growth was unsustainable. Whether that is bad news for you or not depends if you have bought in the past 2 1/2 years. If you have, potentially it is, but if you haven't you aren't really any better or worse off.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
While 'the longest recession on record' makes for a great and scary headline, there are two factors we need to consider: time and depth. A long recession that is very shallow, and has minimal impact on GDP, isn't going to feel very different to where we are now. A long and deep recession would be devastating to the UK economy and no area of it would go untouched. At present all indications and predictions are that we will have a long, but quite shallow recession, so the impact on house prices is likely to be more of a correction back from the silly highs of the last two years than a huge property crash.
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David Robinson
Co-Founder at Wildcat Law
House prices look set to fall more in line with the way they did in the early 1990s rather than 2008. The exception will be overpriced new build developments that will see significant falls. Expect steady depreciations in listed values but far deeper "real" cuts due to inflation. Due to the strength of the jobs market, we are less likely to see a steep drop over a short timeframe a la 2008. In some ways, this will be worse for the housing market as, just as in the early 1990s, we face a long and drawn-out period of difficulty. With many households holding significant levels of debt at record low levels of interest you can expect a steady flow of repossessions coming in 2023. The old adage of what goes up must come down is about to bite the housing market where it hurts.
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Graham Cox
Director at Bridging Hub
I think a fall of 20% or more over the next 18 months is entirely possible. Much will depend on how far interest rates rise and for how long, which of course depends on inflation, and how events unfold in Ukraine. If mortgage rates remain at 5%-6% for any length of time, we can expect big falls. Too many people will be unable to afford their mortgages, and affordability for first-time buyers will be severely curtailed.
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Malcolm Davidson
Director at UK Moneyman
Property prices have risen approx 20% since Covid, which is not sustainable. The so-called experts predicting extreme price falls without fail underestimate the demand for property in the UK. And especially the desire of tenants to get out of the overpriced rental market and own their own homes. Real crashes are predicted all the time but they've only ever happened about twice. Everybody is ultimately guessing, as nobody knows. Also, now that Help to Buy has ended, the impact of this is underestimated and re-sale values will be supported by its withdrawal. 7. I hereby withdraw my application to be a spokesperson for the Nationwide Building Society for expressing an opinion which ought not to be relied upon by consumers to be a “prediction”
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Dorian Payne
Managing Director at Castell Group
In very simplistic terms, prices will drop if demand starts drying up. Demand, for now at least, is still there and we are still not building enough houses as a country. However, mortgage affordability is clearly a material factor when buyers consider the price they can or are willing to pay for a property, so there will either be a levelling-off in prices or a drop to accommodate the new affordability era we are now in. The base rate increase is important, but does it necessarily mean mortgage interest rates are going to rise significantly? Keeping an eye on SWAP rates is also important as 5-year interest rates may not necessarily increase.