Knight Frank warns property market against talking itself into recession

Buyers and sellers should focus on the Bank of England’s actions rather than words when it comes to the housing market, analysis suggests.

Knight Frank has released analysis in response to gloomy forecasts from the Bank of England last week, warning the sentiment doesn’t help the property market and may not be as severe as predicted.

Alongside a rise in the base rate to 1% last week, Bank of England Governor Andrew Bailey talked of “hardship” and a “very sharp slowdown”, with inflation expected to peak at around 10% in the fourth quarter of this year. 

Its warnings prompted the pound to fall to a two-year low amid fears of a recession.

The analysis by Knight Frank highlighted that there doesn’t need to be a recession to dampen the mood in the UK housing market. 

It said: “Mere talk of a slowdown can leave people feeling jittery and some gloomy predictions from the Bank of England last week led to equally ominous headlines. 

“Some buyers and sellers have understandably become more hesitant since the warning, although it doesn’t feel like a black cloud has suddenly descended over the market. 

“We expect double-digit house price growth to slow to single digits by the end of the year as mortgage rates rise, the cost-of-living squeeze intensifies, and, perhaps most importantly, supply increases. 

“However, our central case for house prices remains that a recession will not get thrown into the mix.

“Indeed, some economists have been left scratching their heads after the Bank of England’s latest assessment.”

The agency and financial services brand highlighted comments from Capital Economics that said the Bank’s “dramatic cuts” to GDP will “prove to be too downbeat”, questioning its assumptions on energy costs, the absence of government support and the mitigating role of household savings. 

Other economists agree with the Bank, the EY Item Club issued its own forecast last week, pointing to GDP growth this year and next.

The Knight Frank analysis added: “Such conflicting opinions don’t help buyers and sellers, but the assumption of a marked slowdown clearly comes with more caveats than some of the recent headlines would suggest. 

“In summary, what the Bank does rather than what it says is perhaps worth watching more closely for now.”

Simon Gammon, head of Knight Frank Finance. said: “Proactive borrowers are booking in rates now.

“Some offers are locked in for nine months and it makes sense to act sooner rather than later when every day between one and three lenders are pulling their cheapest products, with rises of between 10 and 30 basis points.

“The situation is being exacerbated because lenders do not want to be ‘top of the leader board’ for the most attractive rates on the market.

“Too much lending can lead to issues around maintaining service standards and bottlenecks. The other reason is that in an environment where rates are rising, the concern of lenders will be focussed on managing their loan book rather than growing it.”