Mini-Budget leads to house prices falls in 2023 and maybe 2024 - claim

The Knight Frank lettings and estate agency is warning that it expects house prices to fall in 2023.

Tom Bill, its head of UK residential research, makes his prediction after the news - from the Nationwide index - that house price growth has dipped into single figures, with values now up 9.5 per cent on this time last year.

Bill says: “We expect single digits to become negative digits next year given how far mortgage rates appear likely to climb. Everyone knew a normalisation was coming but the concern is that the government’s mini-Budget will lead to a steeper rate of increase and more financial pain for households. 

“Given that the sums involved put the government’s entire economic plan in jeopardy, it feels like something has to give. The only thing that moves quickly in the housing market is sentiment and it has been damaged over the last week as mortgage products have been pulled. 

“Whatever action the government takes, it feels almost inevitable that UK prices will fall next year and possibly into 2024. Prices have risen strongly over the course of the pandemic and for context, a 10 per cent decline would only take us back to last summer.”

Another leading analyst - Anthony Codling, now a PropTech entrepreneur but previously a long-standing analyst at business consultancy Jefferies - is also pessimistic on the market.

He said at the weekend: “Following the events of the last Friday's mini-budget (yes that was only a week ago) the dynamics in the housing market have changed. At the start of the pandemic, a temporary stamp duty holiday led to a surge in housing market activity. 

“This time around, a permanent stamp duty cut, along with other tax cuts, appears to risk causing the housing market to stall as hundreds, if not thousands, of mortgage products have been taken off the shelves and several lenders have shut up shop for new buyers altogether.

“The last time we saw such turmoil in the mortgage market was during the Global Financial Crisis when the level of housing activity halved and house prices fell by almost 20 per cent.”

The Nationwide data, produced over the weekend, shows current annual price growth is 9.5 per cent, from 10 per cent in August, with 10 of the 13 regions recording slower annual price growth in the third quarter of the year. The south west was the strongest performing region once again, while London remained weakest.

Robert Gardner, Nationwide’s chief economist, says: “In September, annual house price growth slowed to single digits for the first time since October last year although, at 9.5 per cent, the pace of increase remained robust. Prices were unchanged over the month from August, after taking account of seasonal effects. This is the first month not to record a sequential rise since July 2021.

“There have been further signs of a slowdown in the market over the past month, with the number of mortgages approved for house purchase remaining below pre-pandemic levels and surveyors reporting a decline in new buyer enquiries.  Nevertheless, the slowdown to date has been modest and, combined with a shortage of stock on the market, this has meant that price growth has remained firm.

“By lowering transaction costs, the reduction in stamp duty may provide some support to activity and prices, as will the strength of the labour market, assuming it persists, with the unemployment rate at its lowest level since the early 1970s.

“However, headwinds are growing stronger suggesting the market will slow further in the months ahead. High inflation is exerting significant pressure on household budgets with consumer confidence declining to all-time lows.

“Housing affordability is becoming more stretched. Deposit requirements remain a major barrier, with a 10% deposit on a typical first-time buyer property equivalent to almost 60 per cent of annual gross earnings – an all-time high.

“Moreover, the significant increase in prices in recent years. together with the significant increase in mortgage rates since the start of the year. have pushed the typical mortgage payment as a share of take-home pay well above the long-run average.”