‘From scary to terrifying,’ analysts assess prope...

House prices look likely to fall next year, a senior analyst claims while another warns the property market is moving from scary to terrifying.

Chancellor Kwasi Kwarteng’s mini-Budget last month sent the pound plunging and contributed to wholesale swap rates increasing, prompting lenders to withdraw and reprice mortgages.

This has prompted fears that first-time buyers won’t be able to afford loans, while those remortgaging from record low rates may also struggle.

There are fears that this could hit housing demand and cause forced sales, pushing property prices down.

HSBC is predicting house price falls of 7.5% nationally and 15% in London, while Credit Suisse is forecasting a 10% to 15% decline if rates rise further and towards 6%.

The Bank of England has already stepped in to try to reassure the gilt markets - in an attempt to bring mortgage pricing down - but Tom Bill, head of UK residential research at Knight Frank, said there will be questions about what steps the Government can take to ease fears of rising borrowing costs.

Bill said: “The recent volatility is naturally causing buyers and sellers to hesitate. The only thing that moves quickly in the UK housing market is sentiment and it’s been damaged over the last seven days.

“Even if the Government can start to reverse the impact of the mini-Budget, the reality of higher rates has dawned on people, wherever they end up peaking.

“It therefore feels almost inevitable that prices will fall next year. While it’s true that a similar unfounded sentiment was expressed as Covid first struck in April 2020, the five-year swap rate was less than 1% back then.”

He added that average UK prices have risen by 23% since the start of the pandemic, so even if they declined 10% in 2023, this would take us back to where we were last summer.

Analyst Neal Hudson, of BuiltPlace, struck a more concerned tone.

He warned that the property market was already looking “scary” before the mini-Budget but has now turned “terrifying.”

Hudson’s market commentary for September said: “Rising energy costs and increasing interest rates were already threatening to hit the housing market in coming months while creating financial hardship for many.

“The events of the last week have accelerated that process and increased the probability of a worst case scenario – a severe housing market crash. Interest rates have rocketed past previous expectations and, while the situation is highly volatile, mortgage rates are hitting levels last seen during the 2007-09 downturn.

“The rapid rise in mortgage rates will almost certainly reduce market activity and, in combination with the worsening outlook for the economy and the cost of living crisis, could trigger a price crash.”

He suggested higher rates will lead to higher repayments for those taking out new mortgages and limits on what they can borrow, which will hit first-time buyers and existing homeowners, adding: “With the rapid rise in mortgage rates, worsening outlook for the economy, cost of living crisis, and, potentially, large cuts in public spending, the possible drivers of forced sales are all present.

“Combined with the sharp shifts in the underlying fundamentals of house price affordability along with likely falls in transactions and we could easily see price falls of the scales seen in previous downturns.”

Hudson said there is still a great deal of uncertainty about the future and a housing market downturn is not guaranteed.

He added: “However, the events of the last week have accelerated the market towards what was its worst case scenario and the opportunities to avoid it are reducing. Even a full reversal would leave a long lasting impact on the mortgage and housing markets.”