Home Property Finance & InvestmentMortgages House prices are starting to slow and ‘growth is likely to stall next year’ due to continued inflation and rising mortgage rates

House prices are starting to slow and ‘growth is likely to stall next year’ due to continued inflation and rising mortgage rates

by LLP Finance Reporter
2nd Sep 22 11:44 am

House sales are set to slow in the second half of this year and Hamptons estimates there will be around 1.25m transactions in 2022, 9% more than in 2019.

The company are forecasting that the average house price in the UK will still end the year 5.0% higher than at the end of 2021, exceeding the 3.5% forecast last year, however this will be down from 9.2% growth in Q4 2021.

The delays to completions mean that the impact of higher interest rates and the cost of living are not likely to be visible in official transaction data until early 2023.

Hamptoms are predicting that the house price growth will steadily slow throughout next year and the average house price will likely to remain the same as it did in the fourth quarter of 2022.

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Despite prices staying flat in 2023, they believe it may take a hit over the year, declining to 1.1m, as the base rate peaks at around 2.5%, making mortgages “noticeably more expensive.”

Continued rising inflation will also reduce how much households can save and limit their capacity to borrow, depressing house price growth.

Transactions could start to increase in 2024 as households who delayed a move in 2023 take advantage of declining interest rates, Hamptons thinks transactions will rise to 1.2m across the UK in 2024.

Consequently, house price growth should rise to 2.0% by the fourth quarter of 2024, although uncertainty surrounding the outcome of an impending general election may dampen the mood.

By 2025, Hamptons predicts that transactions will reach a post-Covid normal of 1.3m and that the number of sales will remain above pre-pandemic levels, partly because the number of households has grown.

It forecasts that house price growth by the end of the year will be 3.0% across Great Britain, reflecting a rise in households’ real incomes.

By 2025, it estimates that base rate is likely to settle at a new normal of about 1.75%. First-time buyers, the group hardest hit by higher rates, are likely to make a comeback, as affordability pressures ease.

Aneisha Beveridge, head of research at Hamptons, said, “The housing market has outperformed our expectations once again in 2022, but with a cocktail of risks on the horizon, growth is likely to stall next year.

“Financial pressures are raining down on households as inflation bites and mortgage rates rise. And it’s unlikely we’ve seen the worst of it yet, with rates expected to peak at the beginning of 2023. This means price growth in the years running up to 2025 will add up to 2021 levels.

“All eyes are on interest rates as this will be the key determinant of house price growth in the coming years. Given many mortgaged homeowners won’t have witnessed interest rate rises, it will take time for them to adjust.

“While it’s likely that the base rate will remain lower than it has in the past, higher levels of mortgage debt will magnify the impact of even small rises. If mortgage rates surpass the 5% mark, there’s a much stronger likelihood that house prices will fall.

“With more stringent affordability testing in place since the financial crash and a record share of outright homeowners, we’re likely to see fewer repossessions and forced sales which were a key driver of house price falls in 2008.

“Low-yielding landlords are the group most likely to sell up as they come under pressure from rising mortgage costs and new legislation.

“Longer-term, we expect the market to return to its traditional cycle. Price growth will begin to recover in 2024, with London leading the way as a new cycle dawns in 2025. However, stretched affordability will mean we’re likely to see considerably less price growth than in the past.”

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