House prices in the UK have only been going one way over the last decade .... up. While the rate of increase was quite moderate initially it has accelerated fast recently, with house prices rising 15.5% over the last year alone.

But in a few short weeks so much has changed in the property market, in the economy and in politics too. There is much to suggest that house prices can’t keep on rising anymore and are likely to fall and potentially even crash. So in this post we will take in some different expert forecasts on where house prices might be going next.

What could cause house prices to fall?

Many experts predicted that house prices would fall during Covid. But that didn’t prove to deliver enough of a shock to the market. Indeed measures brought in to mediate its impact probably helped house prices to boom.

Just lately totally different risks to the market have developed, however. Interest rate rises, and the likelihood of more to come (possibly to a base rate around 6%) are increasing the cost of borrowing. The cost of living crisis is making many reconsider the idea of moving, or buying a house for the first time too.

What could help support house prices?

Looking at the other side of the coin for a moment there are also some factors that could support house prices. Firstly, Stamp Duty cuts could encourage some buyers to still buy .... especially first time buyers. Various proposed tax changes, to Income Tax, Corporation Tax and National Insurance, could lessen the impact of higher mortgage costs slightly for both buyers and investors.

One factor that is not often considered is the weakness in the value of the pound. This could actually encourage overseas buyers to buy or invest in UK property.

Some expert opinions on where property prices are going

Not too long ago many experts were predicting prices would continue to rise this year and next.

Even very recently experts were forecasting house prices would be broadly static next year.

For example, Knight Frank suggested they might rise by 1% while Savills suggested they might fall by 1%.

So let’s take a look at what a selection of pundits are predicting now:

* HSBC is predicting house price falls of 7.5% nationally and 15% in London, according to this report.

* This report quoting experts including Ray Boulger, Senior Mortgage Technical Manager at well-known mortgage broker John Charcol, expects house prices might fall at least 10% next year.

* Pantheon Macroeconomics, global economic analysts, suggest that house prices will drop by only around 5% over the next 12 months.

This report based on their UK Economic Monitor suggests that higher mortgage rates and the cost of living crisis will be to blame. They believe that a fall in the number of houses for sale, though not as rapid as the fall in demand, will keep house price falls to a lower figure than might otherwise have been expected.

* Anthony Codling, CEO, at property platform Twindig and a long standing property market analyst draws some parallels with the global financial crisis where the level of housing activity halved and house prices fell by almost 20%. In this report he says that despite Stamp Duty and other tax cuts the housing market could stall as attractive mortgage deals have been taken off sale and several lender become unwilling to consider new buyers.

* In this report Tom Bill, Head of UK Residential Research at consultants Knight Frank, suggests that tax cuts will be ‘dwarfed’ by higher mortgage bills. He says that volatility is naturally causing buyers and sellers to hesitate and sentiment in the UK housing market has been damaged over recent last days. He believes that it ‘feels almost inevitable’ that property prices will fall next year.

However, Bill points out that average UK prices have risen by 23% since the start of the Covid pandemic. So even if house prices fell by 10% in 2023 prices would still be at the same level as last summer.

In summary the broad thrust of expert opinions seems to be that house prices will indeed head on a downward slope over the coming year. But for various reasons the fall might not be quite as severe as could have been the case.

Of course, forecasts are just that – forecasts. House price crashes have been widely predicted by some for a decade now and never actually happened.


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