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UK house prices may fall 20% amid mortgage ‘carnage’

Turmoil in the UK’s financial markets has prompted analysts to predict that house prices could fall by as much as 20% amid “carnage” in the mortgage sector and warnings of a big jump in borrowing costs on the way.

Despite the worsening cost of living squeeze, the property market has been defying the doomsters for months. That could finally be about to change, following the chaos unleashed by Kwasi Kwarteng’s mini-budget.

Ray Boulger, the senior mortgage technical manager at home loans broker John Charcol, predicted a fall of “perhaps around 10%” next year. Analysts at the likes of Credit Suisse said it could be between 10% and 15%. Others claimed it might be even more serious than that.

Graham Cox, director of the firm Self Employed Mortgage Hub, said: “Unless we are very lucky and inflation falls much more quickly than predicted, I don’t see any other outcome than a sizeable fall in house prices – possibly 20%-plus over the next two to three years. I’ll be accused of being a doom-monger, but if you use simple maths and common sense, how can house prices not fall? A lack of housing supply won’t help one iota when mortgage rates are somewhere between 5% and 7%.” He claimed that “the decade-long property bubble is about to burst … It’s a buyer’s market now.”

According to most of the published data, house prices have surprised many by continuing to rise: according to Halifax and Nationwide, they typically went up by 0.4% and 0.8% in August, respectively. Nationwide said the annual UK house price growth rate was still (just) in double digits: 10%, down from 11% in July.

However, one of the elements that have been keeping the market buoyant is that demand has been outweighing supply – in other words, a shortage of homes for sale has been continuing to drive prices up. A lot depends on what happens with supply going forward and whether people who are currently thinking about buying are going to scale down their ambitions or throw in the towel and ditch their plans for now.

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