A report from the Centre for Economic and Business Research (CEBR) suggested there would be a “peak annual contraction” of 6.2% in the third quarter, blaming the combination of sharp rises in mortgage rates, rising cost-of-living pressures, and the potential increase in unemployment from the UK entering recession.

The CEBR said that while the new energy price guarantee would provide some “respite”, the other negative forces would “plague the economy” for at least the next year.

It stated that those unable to purchase a property might welcome the idea of falling prices, as it should make home ownership more affordable. However, it cautioned this would “likely prove misguided” since a contracting housing market would bring economic pain for everyone.

CEBR argued that affordability would not improve, since lenders would likely push down loan-to-value ratios throughout any downturn, reducing accessibility to affordable mortgage finance further.

Economic threat

The report stated that falling prices pose “an economic threat” irrespective of an individual’s homeownership status, noting that falling prices dampen confidence, which in turn lead to lower consumer spending, deeper recessions and higher unemployment.

Karl Thompson, economist at CEBR and author of the report, said: “Within the current climate, therefore, there seem to be few advantages to the anticipated fall in house prices. In light of this, it may now be time to seriously consider reviving the stamp duty holiday – or even better yet, a complete overhaul of property taxation – in order to keep some life in the housing market and thus the UK economy more broadly.”