House prices to drop 10% in next two years - agency’s stark warning

A prominent research chief at a leading agency has repeated his claim that average UK house prices are set to drop 10 per cent in the next two years.

Tom Bill, head of UK residential research at Knight Frank, made the claim for a second time over the weekend in response to the latest Halifax house price data. 

Bill says: “It’s a fairly safe bet that UK house prices have now peaked. The impact of rising mortgage rates will begin to hit demand and spending power in coming months, which we believe will lead to a fall of 10 per cent over the next two years for UK prices. 

“We may see mortgage rates fall to some extent if financial markets become more reassured by the government’s economic plan but the events of the last fortnight have been a reminder that the era of ultra-low rates is coming to an end.”

Bill’s warning is not a one-off.

Analysts at Credit Suisse say that house prices “could easily fall 10 to 15 per cent” while Bloomberg Economics anticipates 10 per cent-plus declines.  HSBC is predicting a UK-wide drop averaging 7.5 per cent nationally and 15 per cent in London.

The forecasts comes as the average UK house price saw a slight fall in September of 0.1 per cent, the second  decrease over the past three months.  The Halifax says the cost of a typical home edged down a little to £293,835 from the previous month’s record high (£293,992). 

The pace of annual growth also slowed for the third month in a row, to 9.9 per cent from 11.4 per cent, returning to single-digits for the first time since January.

Halifax Mortgages director Kim Kinnaird says: “The events of the last few weeks have led to greater economic uncertainty, however in reality house prices have been largely flat since June, up by around £250. This compares to a rise of more than £10,000 during the previous quarter, suggesting the housing market may have already entered a more sustained period of slower growth. 

“Predicting what happens next means making sense of the many variables now at play, and the housing market has consistently defied expectations in recent times. 

“While stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead. 

“This will undoubtedly be a cause of some concern for homeowners, but the unprecedented rate of property price inflation we’ve seen in recent years has been far above the historic average. It’s important to look at slower growth in this context – since the start of the pandemic average property values have risen by around 23 per cent (almost £55,000) with detached house prices up by more than £100,000 over the same period.” 

Nathan Emerson, chief executive of letting and sales agents’ body Propertymark, adds: “As we can now see, buyers coming to the market are being much more sensible with their cash and budget decisions and are analysing the market and taking their time in moving so we will continue to see this being reflected in the prices being achieved.

"Our member agents have told us that they are seeing mortgage in principle offers expire before the completion of a property. Due to interest rate rises, this is then causing some buyers monthly payments to increase and is showing signs of re-negotiations.

"With prices inflating over 20 per cent in the last two years, witnessing a decrease isn't as majorly concerning as it sounds."