House prices to stabilise next year

The forecasts come after the UK housing market defied warnings of a deep correction in 2023 on the back of increasing interest rates

UK house prices will stabilise next year as mortgage affordability improves but high interest rates will continue to weigh on activity, according to forecasts from leading mortgage providers.

Nationwide Building Society forecasts house prices to “remain broadly flat” or see a “low single-digit decline,” and HSBC said “we no longer see any further falls from here but we do not expect much growth either.”

Halifax has the bleakest outlook of a 2 per cent to 4 per cent decline.

The forecasts come after the UK housing market defied warnings of a deep correction in 2023 on the back of increasing interest rates.

Halifax had forecast a decline of 8 per cent but the drop has turned out to be only 1 per cent. Nationwide had forecast a 5 per cent drop but said prices are down only 2 per cent on its measure.

Last year, several forecasters were predicting a housing market downturn as the BoE hiked interest rates to tame inflation.

Interest rates have been increased from 0.1 per cent in December 2021 to 5.25 per cent but the scale of fixed-rate deals means just more than half of all mortgage borrowers have had to refinance at a higher rate so far.

UK property prices held up better than expected over the last year, Kim Kinnaird, director of Halifax Mortgages, said.

This resilience, which owes more to the shortage of available properties for sale than strength of demand among buyers, means average prices end the year just 3 per cent down on August 2022’s high, Kinnaird added.

Instead of a decline in prices, the impact on the housing market has been a slump in transactions as expensive mortgages and high deposits persuaded people to stay put.

Mortgage rates are three times the record lows of 2021.

The number of households on two or five-year fixed-rate deals has provided some safeguard against sudden big rate hikes.

The strong labour market, with low unemployment and big albeit sub-inflation pay increases, has also been a buffer against affordability problems.

Halifax said overall housing transactions were the “lowest in at least a decade.”

Nationwide added that the total number of transactions “has been running at about 15 per cent below pre-pandemic levels” and 25 per cent below for transactions involving a mortgage.

Cash transactions have been higher than usual as those with the money have taken advantage of the drop in house prices.

Mortgage costs are now moderating as markets anticipate central bank rate cuts for 2024.

Nevertheless, the forecasters stopped short of forecasting a recovery in house prices.

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