HOUSE prices are falling, but is a crash really on the cards?
Mortgage rates have risen dramatically in recent months and it could cause movers to pause their plans.
GettyHouse prices could continue to fall, but experts are divided over a crash in prices[/caption]
With the cost of living crisis squeezing incomes for homeowners and first-time buyers alike moving house may be at the bottom of the list of concerns.
Property prices surged last year due to pent-up demand following coronavirus, a lack of homes on the market driving demand up and the end to the stamp duty holiday.
But in November, Nationwide reported that the average house price stood at £263,788 – down by £4,494 from the previous month.
At the start of December, Rightmove reported that the average asking price dropped to £359,137 – down by £7,862 from the previous month.
The drops came even after the government announced a permanent cut to stamp duty in a bid to boost economic growth.
Before the cut, no Stamp Duty was paid on the first £125,000 of any property purchase.
That’s now double at £250,000 for all home purchases.
The threshold at which the duty was paid for first-time buyers was £300,000. But that is now £425,000.
The maximum value of a property on which first-time buyers’ relief can be claimed also increased from £500,000 and is now £625,000.
But property prices came under immense pressure after mortgage rates shot up following the disastrous mini-Budget and amid rising inflation which sat at 11.1% in October.
The Bank of England (BoE) also hiked its base rate to 3% earlier this month, piling pressure on mortgage owners.
It increased its rate from 2.25% to 3% – the biggest single rise since 1989, in a bid to slow soaring inflation and encourage people to save.
But The Bank used its announcement as an opportunity to revise its predictions on how much interest rates will rise in future, and this has brought some relief to mortgage bills.
After the Mini-Budget it had warned that they would hit 6% next year, which caused mortgage lenders to hike fixed bills.
However, today it said that rates would hit a maximum of 4.6%.
And in an unprecedented move, Barclays became the first bank to cut bills for mortgage customers on standard variable rates, known as SVRs – and other lenders then followed.
So with all this going on, what does it mean for house prices, and will there be a crash any time soon?
Will there be a house price crash?
The last time property prices crashed was during the global financial crisis.
UK house prices reached an average of £190,032 in September 2007 and had dropped to £154,417 by February 2009 – a fall of more than 18%.
They did not regain that peak until August 2014.
As we mentioned above, the average asking price on a property hit £359,137 in December, according to Rightmove.
The number of homes seeing a reduction has also crept up by 2% to 23%.
And house prices can fluctuate from one month to the next by small amounts, and based on the season, for instance, demand can drop over Christmas pushing down prices.
Rising interest rates, which have caused mortgage rates to skyrocket will mean house prices are likely to drop over the next couple of months.
And the Bank of England does expect the recent falls in house prices to continue due to higher mortgage rates.
Meanwhile, Nick Morrey, from mortgage company Coreco, said house prices would fall next year but that nothing would happen straight away.
He added: “This is what we expected and the markets were expecting.”
Of course, no one can predict for sure what will happen to house prices, but here’s what experts say is going on the market right now.
In the Office for Budget Responsibility (OBR) economic forecast it predicted that house prices could fall 9% by 2024.
The OBR expects average interest rates on the stock of outstanding mortgages to peak at 5% in the second half of 2024, the highest since 2008.
It will then fall back slightly to 4.6% by the end of 2027.
The OBR says that these predictions are just a forecast though and could change, there is still “significant uncertainty”.
Tim Bannister, Rightmove’s director of property science, said: “Economic headwinds including rapidly rising mortgage costs mean that some would-be buyers may have paused their plans for the foreseeable future.
“It’s understandable that some buyers are distracted, not only by the festive season, but also by the thought that they may get a better fixed-rate mortgage deal and a more stable outlook by waiting until the new year.
“We predict an overall drop of 2% in average asking prices next year as economic headwinds continue to soften activity and lead to a more normal market, though price falls will be tempered by few forced sales.”
But in its latest economic outlook, Lloyds Banking Group has said it expects house prices to fall by around 8% in 2023.
The banking group owns Lloyds, Halifax and Bank of Scotland and is the UK’s biggest mortgage lender.
In an update to its economic forecasts, the bank said that it believes the Bank of England (BoE) base rate will reach 4% by the end of the year.
Of course, it’s worth noting that predictions are just that and that no one can say for sure.
But if inflation improved and interest rates stabilise, Lloyds said house prices could fall just under 3%.
A cut to stamp duty by the government could boost house prices.
But the new government under Rishi Sunak has confirmed that it will axe the stamp duty cut from March 31, 2025.
Our mortgage payment calculator can help you work out how much you can afford to borrow to buy a home.
And our My First Home series reveals each week how first-time buyers have got a foot on the ladder – like the two best friends who teamed up to buy a £505,000 first home.