Knight Frank lowers house price expectations after ‘volatile summer’

Knight Frank has revised its house price forecasts and now expects a steeper market drop.

The agent previously predicted a 5% fall in house prices this year but has revised this to 7%.

However, the brand has become slightly less negative on next year, expecting a 4% drop instead of 5%.

The update didn’t give much explanation for the changes in expectations, but highlights the high cost of borrowing and looming General Election as issues causing uncertainty and hitting market sentiment.

Tom Bill, head of UK residential research for Knight Frank, said: “The volatility this summer means that we now expect UK house prices to fall by 7% this year, more than our forecast of -5% in March.

“Next year, we expect prices to fall by 4%, less than the 5% we forecast earlier this year, as the economy stabilises, and speculation turns to when the first – small - rate cut will come. Improving sentiment will be key.”

Bill said the number of people moving from lower fixed-rate mortgages will not fall in 2024, but the backdrop will not be such an unpredictable flow of economic data and 14 consecutive rate rises.

He added: “That said, a general election is likely in 2024 and uncertainty ahead of any vote typically suppresses demand. A change of Government represents a higher risk for prime markets in particular, but higher rates of tax around property and wealth has been the global direction of travel for more than a decade.”

Forecasts for prime central London have been changed slightly from a 3% drop rather than 4%.

Bill said:  “We still think prime central London will experience a smaller correction, due to a combination of more cash sales, the fact prices are still more than 15% below their last peak in mid-2015 and the fuller return of international travel.”

Prices in country markets are expected to fall by more than expected in March, declining 7% this year rather than 5%. The main reason is that country markets are coming down from a relatively higher point during the pandemic compared to London, Bill said.