House price drop of up to 10% next year - but NO market crash

A panel of experts forecast house prices will fall as much as 10 per cent by Autumn 2024.

Financial website Finder brought together academics, economists, mortgage and savings experts,to ask them for their predictions on what will happen to the base rate for the rest of 2023, and the impact this will have on the UK economy. 

Almost three quarters of the experts believe that house prices will fall between five and 10 per cent.

Charles Read, fellow in economics at the University of Cambridge expects house prices to drop by five to 7.5 per cent. He explained that “sharp rises in interest rates since the end of 2021 has reduced affordability of mortgages and new house purchases, pushing down prices”.

David Mcmillan, professor in finance at the University of Stirling expects a more severe reduction of 7.5 to 10 per cent. McMillan explained that household incomes will be “squeezed in several ways” next year and “as much as these economic conditions will lead to price falls, they will also likely lead to a fall in the volume of transactions.”

David Hollingworth, associate director at L&C Mortgages agrees that house prices will fall but not significantly, as he expects buyer confidence could grow. He commented that “as the rate outlook improves and mortgage rates stabilise and continue to improve, that could see buyer confidence begin to improve into next year which will likely see a soft landing.”

The experts are confident that a housing market crash is not on the horizon, with 73 per cent predicting the UK will avoid a crash of this kind. 

Luciano Rispoli, senior lecturer in economics at the University of Surrey commented: “Despite higher interest rates, housing demand is still strong and supply structurally low.”

Kate Steere, deputy editor at Finder, added that the UK housing market is “now in a period of adjustment, where prices have fallen and will continue to fall from their previous highs. But the fundamental concept of a shortage of supply and solid demand will stop house prices from spiralling downward.”

Sam Miley, managing economist and forecasting lead at CEBR was the only expert who anticipates that a housing market crash is on the horizon, citing high borrowing rates and a downward pressure on demand as the key causes: “Interest rates are expected to remain higher than their pre-crisis levels well into the mid-2020s. This makes borrowing more expensive, putting downward pressure on demand from buyers. It also makes debt servicing costs more expensive for those on flexible tariffs, which could encourage forced selling and hence an expansion in supply.”

Ten of the 11 experts expect that the base rate will now remain at 5.25 per cent until the end of the year, with just one expert predicting it will fall to 5.0 per cent in December. 

Paul Dales, chief UK economist at Capital Economics, believes that the base rate will hold at its current rate, and offered his thoughts on the longer-term picture, stating that “the Bank seems intent on keeping rates high for long rather than taking them higher and cutting them again. Our forecast that core inflation and wage growth will fall only slowly suggests that the Bank will keep interest rates at their peak for a long time - perhaps until late in 2024.”

Luciano Rispoli added, "I believe the Bank will want to wait for further inflation data before committing to a change of policy. Therefore, I believe that interest rates will be on hold for a while”.

Alan Shipman, senior lecturer in economics at the Open University, was the only expert to predict that the BoE will lower rates once more before the end of the year. He commented that, “falling inflation, slower fourth-quarter GDP growth, and signs of private-sector debt problems will persuade the MPC to start reducing interest rates by year-end.” 

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