Landlord Knowledge - Home of the Savvy Buy to Let Property Investor

Decade-high Interest Rates Predicted to Cause Significant Plunge in UK House Prices

Economists are raising alarms about the UK’s housing market, forecasting a significant drop in house prices with minimal chances of recovery due to persistently high interest rates.

S&P Global Ratings predicts that the average UK home value will undergo a 12% plunge from its peak to its lowest point by the conclusion of 2024. The firm asserts that a robust recovery seems unlikely as higher real costs of borrowing will persistently plague mortgage holders and buyers.

According to S&P’s projections, house prices in the UK will face a 6.6% fall in 2023, followed by a further dip of 4.9% in the subsequent year. The firm then anticipates a period of stagnation in the housing market, forecasting a scant growth of 1.4% and 3% across 2025 and 2026, respectively.

The real impact of rate hikes has yet to fully hit homeowners, with increased interest rates continually seeping into the mortgage market. S&P warns that homeowners reaching the end of their fixed-rate deals will experience intensified pressure. “There is still some time to go before mortgage pain reaches its peak,” the firm added.

Boris Glass, a senior economist at SP Global, cautioned that homeowners should not expect relief, even if interest rates begin to descend post-2024. Glass stated, “Even when central banks ease again, mortgage holders and potential buyers will continue to face higher real costs of borrowing that will take a larger share out of their budget and moderate demand for the foreseeable future.”

Moody’s also anticipates a decline in UK house prices, albeit a slightly lesser one at 10% by the end of 2024. This is as mortgage rates skyrocket, thereby diminishing housing affordability. Moody’s envisions a 4% drop in the housing market this year and a 6% decline in 2024, rendering the UK’s property sector the most adversely affected amongst large developed economies.

Senior Vice-President at Moody’s, Madhavi Bokil, said, “We expect the Bank of England, faced with the responsibility to bring stubbornly high inflation down, to maintain a tight monetary policy stance through 2024. The effects of interest rates on housing demand in the UK are therefore likely to be acute and prolonged.”

Most mortgage holders in the UK, more than 90%, are tied into fixed deals spanning two to five years. The majority of these homeowners have not yet felt the impact of interest rate hikes, which have escalated from 0.1% to 5%. However, more than a million homeowners will face the harsh reality of these hikes when renewing their loans in the latter half of this year.