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House prices expected to fall by as much as 10%

Nick Cheek
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Nick Cheek

Average house prices could fall between 5% and 10% as mortgage rates remain elevated and cost-of-living pressures start to bite, according to a leading consultancy firm.

According to economic forecasting group the EY Item Club, the fall in October house prices reported in Halifax’s and Nationwide’s house price index is likely to be repeated in coming months.

Martin Beck, chief economic advisor at the EY Item Club, said that mortgage rates had fallen from the highs after the mini Budget but still “remain elevated” compared to early to mid September.

Beck pointed to the Standard Variable Rate (SVR) for Halifax mortgage now standing at 5.74%, compared to 3.74% pre-mini Budget.

He said that high mortgage rates and cost of living pressures, along with October’s fall in house prices were a “likely precursor of further decline”.

Beck explained: “House prices are still very high on most metrics with average property prices having risen more than £22,000 in the past 12 months, and by almost £60,000, or just over a quarter, over the last three years.

“[However], cost-of-living pressures remain significant, and household incomes face an added challenge due to tax rises and public spending restraint in November’s Autumn Statement, while consumer confidence remains depressed.”

Markets calmer but houses prices will still fall

However, he said that the extent of likely drop had “retreated over the last few weeks” as financial markets have calmed and the new government has changed its fiscal policy.

This meant the Bank of England raised interest rates at a “more modest extent” than investors had previously forecast, Beck noted.

“The Bank also pushed back against the extent to which markets think rates will rise further, a move which is expected to cause mortgage rates to fall back further.

“The EY ITEM Club expects average property prices to fall further, although the decline is likely to be restricted to between 5% and 10%.”