Will house prices drop significantly if interest rates remain high

The house party is over. I believe we'll see a 20% fall in house prices peak to trough, with the bottom hit sometime in the first half of 2025. Real prices, allowing for inflation, will fall a lot further.

Vested interests like estate agents, and even some lenders continue to spout nonsense, citing 'high demand', failing to recognise that demand is mostly governed by the availability and affordability of credit. The self-delusion and wishful thinking are staggering.

Simple logic dictates that if house prices could only reach their unfathomable heights when the base rate was 0.1 per cent, they surely have a long way to fall when over 5 percent. Landlords are also likely to sell up, as are owner-occupiers unable to refinance affordably.

Ultimately house price falls are a good thing, and long overdue. The current situation is turning the UK into a nation of debt slaves and causing untold misery.

House prices might fluctuate and dip but will always continue to rise. Land is at a premium and supply is restricted whilst demand is insatiable both nationally and internationally.

Accidental and part time landlords will be forced out of the market in favour of cooperate ownership in a bid to professionalise this sector of the rental property market.

For many low income people the current market conditions will feel like death by a thousand paper cuts, homeowners that have seen inflation and rising energy costs taking a chunk of their earnings safety buffer will see the remainder, if any, soon eroded by a change in mortgage product when their current deal ends.

We are seeing a significant slowdown in transactions and agreed sales. Affordability will become very stretched and I expect that the base rate will now peak over 5.5%.

Essentially, inflation is nowhere near the Bank of England target and rising wages are just offsetting the benefits of rising interest rates to combat inflation. Moreover, the labour market has been especially resilient.

New data from HM Revenue & Customs has revealed the number of UK residential property transactions in April 2023 was 32% lower than the same month in 2022.

Interest rates had gone from 17% in 1979 down to 9% in 1982, and were back to 14.88% in October 1989. Therefore I don’t expect things to get so bad.

We believe that house prices will fall 10-15% from peak to Autumn 2023 and we will continue to see an exodus of landlords, who will face significant falls in profit once their fixed term mortgages expire.

Despite the madness of the last 9 months, buyer interest in properties is still up on pre-pandemic levels. Fundamentally, what's the option if people don't buy? Renting is a busted flush with prices going up at pushing 10% a year and worsening supply vs. demand issues. Those betting against house prices need to factor in the wider issues in a broken housing market where there isn't enough to go around.

The markets have been consistently inconsistent with the reliability of their forecasts and expectations and so it would be folly to allow these to influence or hold much sway at this stage,however, unquestionably the impact on the affordability of current-never mind future or anticipated-rate volatility and increases for both purchasers and those looking to remortgage is significant.

The effect on the housing market will likely be twofold.

Buyer demand will inevitably diminish in many areas due to the impact on lending opportunities and viability due to affordability.

Sadly,whether by choice or repossession, many landlords and homeowners are now faced with the fact that their existing mortgage is no longer viable and so this will lead to an increase in the supply of homes to the market.
Rudimentary economic theory tells us that this combination should result in a fall in prices and it would seem that a flattening at least should be expected in the second half of 2023.

Increased borrowing costs will make many prospective house purchases far less attractive, especially when offset against the challenges faced by us all to keep our heads above water, during the current cost-of-living crisis.
The threat of increased borrowing costs certainly dampens and consequently lowers house purchase demand. To keep the housing market attractive, prices will inevitably fall. Will they fall significantly, I think not.

Many of our new build housing projects have been postponed owing to the most recent borrowing cost rises, consequently stirring an increased buyer appetite to purchase the limited existing housing stocks currently on the market.
The net effect of this will limit any significant housing value falls, as buyers fight to secure the best deals on the limited stock currently on the open market.
This housing market may although now be threatened by high-street lenders withdrawing many of their current mortgage products whilst the bank rate settles.