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What is the prediction for house prices 2022?

It said house prices will have risen 6 per cent by the end of 2022 but that they will fall 5 per cent in 2023 and a further 5 per cent in 2024 as a result of the sudden spike in mortgage rates caused by the government's fiscal plans. This would take house prices back to where they were last summer.

investorschronicle.co.uk - How far will house prices fall? - Investors' Chronicle

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Many experts predicting price drop between 5 and 15 per cent

Effects could vary depending on leverage and geography

For over a decade, UK house price growth has been unbroken. The Office for National Statistics has recorded an increase every month since May 2012. Neither Brexit nor the pandemic has been able to stop it, but many experts are now forecasting that the fallout from the “mini” Budget will. Last week, Knight Frank became the first major broker in the UK to forecast a double-digit downturn – predicting that house prices would fall almost 10 per cent over the next two years. It said house prices will have risen 6 per cent by the end of 2022 but that they will fall 5 per cent in 2023 and a further 5 per cent in 2024 as a result of the sudden spike in mortgage rates caused by the government’s fiscal plans. This would take house prices back to where they were last summer. “The five-year swap rate, which dictates the price of most fixed-rate mortgages in the UK, exceeded 5 per cent in early October compared to less than 3 per cent in early July when we last issued our house price forecasts,” it said, adding that “as a result of this more adverse outlook for borrowers” prices would have to fall to match house buyers' smaller budgets.

Fall forecasts grow

Knight Frank is not alone in its prediction. It joins the likes of Credit Suisse and Capital Economics which have both forecast a fall of between 10 and 15 per cent. Many of Knight Frank’s competitors also believe house prices will fall: Belvoir (BLV) said that the combination of rising interest rates and the rising cost of living would knock budgets significantly, but added that current mortgage levels were not high enough to reduce prices at all. "If interest rates continue to rise it is likely that asking prices may fall by between 5 and 10 per cent next year," a spokesperson told Investors' Chronicle. "If, however, interest rates on fixed term mortgages remain at their current levels, it is likely that prices will remain static and may even increase by 2 to 3 per cent." Meanwhile, Savills (SVS) said there would be “downward pressure” on house prices but wouldn’t be drawn into publishing a figure until after the Bank of England’s (BoE) rates meeting on 3 November. CBRE (US:CBRE) also would not commit to a figure, though it did say that it “expect[s] the UK residential market to slow in 2023”. JLL (US:JLL) predicted house prices would drop over the course of next year and that it would come out with a number “in a week or two”. It added that transactions would likely drop 30 per cent in the short term. “The basket of properties that does transact will include a higher proportion of motivated sellers interacting with opportunistic buyers,” said head of residential and living research Nick Whitten.

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Knight Frank’s head of residential research Tom Bill said the drop in house prices would be even across different types of properties. The differentiating factor, he said, would be leverage. Prime properties, which tend to be bought at a lower loan-to-value (LTV) ratio, should fall less in price than those bought at a higher LTV because mortgage rates won’t impact lower LTV buyers as heavily. Bill also expects variation geographically, with “some outperformance in more affordable parts of the UK like the Midlands”. London will also behave differently. The agency is predicting a 6 per cent fall for the capital as a whole next year compared with a 5 per cent UK-wide fall. Meanwhile, in prime central London, it is forecasting a 3 per cent fall because of the lower LTV ratios and a “broader base of returning international buyers”. Mortgage brokers who work with high net-worth individuals from overseas echo the latter point – the fall in the pound relative to the dollar and other currencies means that prime London houses are very attractive to foreign buyers right now. Yet, even if interest from international capital surges, few believe this will be enough to stop an overall drop in prices. Others in the industry think that the house prices downward trajectory could be reversed by the BoE’s meeting in November, but Bill at Knight Frank disagreed. “More so than what the Bank of England does next, it’s what the government does next,” he said. It’s for this reason that he said the agency is updating its forecast more frequently than in the past. “We’ll revisit it again before Christmas,” he said. In other words, unless the government comes out with another radical set of policy proposals, a fall looks inevitable. Five, 10 or 15 per cent? It's up to Downing St.

investorschronicle.co.uk - How far will house prices fall? - Investors' Chronicle

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