House prices set to plummet to 2013 levels as mortgage rates soar

Ray Bolger says house prices set to fall '10% next year

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Average house prices will fall by 14 percent over the next three years, a 29 percent slump in real terms, a leading economist has claimed. This would make the average price for UK houses back to 2013 levels. 

Simon French, chief economist at Panmure, said: “This would take the inflation-adjusted average price for UK houses back to a level last seen in [the] first quarter [of] 2013 before the Help to Buy programme was instigated.”

He said the housing market is facing its biggest challenge since the global financial crisis in 2007. 

But argued that the “huge monetary easing” during that period is unlikely to be repeated now, meaning the coming years could look similar to the financial challenges seen in the early 1990s. 

The housing price predictions have come at the same time it emerged banks were preparing to slash mortgage lending by levels seen during the depths of the financial crisis even before Kwasi Kwarteng’s mini-Budget announcement. 

The recent turmoil in the mortgage market has been compounded by economic uncertainty resulting from higher energy bills and the cost of living crisis. 

Simon Rubinsohn, economist for The Royal Institution of Chartered Surveyors (RICS), said: “Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near-term expectations for both pricing and sales.

“Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction.”

The Bank of England’s credit conditions survey said bank expectations for mortgage lending is expected to slump to a net balance of -41 in the fourth quarter. 

This would be the second-weakest mortgage lending since the credit crunch in 2008 after the lockdown-impacted second quarter of 2020.

It compares to a score, which has been set at minus 13.3 for the past three months.

Banks said the reason they plan to rein in lending was due to the deteriorating economic outlook and expectations for house price falls. 

Lenders are also expected to rein in unsecured lending on credit cards but in a less dramatic way. 

Andrew Wishart, property economist at Capital Economics, said: “It shows rising interest rates and the darkening outlook were already weighing on both the availability of and demand for credit.”

He also noted that since the survey was taken markets have ramped up their bets on interest rate rises.

Investors currently expect the Bank of England to lift rates to 5.5 percent by mid-2023, a major drag on activity in the housing market.

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