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UK house prices will not stop falling until 2025

UK house prices will continue to slide this year and in 2024 and will not start to recover until 2025, Lloyds Banking Group has forecast.

The lender, which owns Halifax and is Britain’s largest mortgage provider, said that by the end of 2023, house prices would have fallen 5% over the year and were likely to decrease by another 2.4% in 2024.

The forecasts, released on Wednesday alongside the group’s third-quarter financial results, suggest an 11% decline in property prices from their peak last year when the market was still fuelled by a rush for larger homes after the coronavirus pandemic.

Santander predicts a more significant drop in UK house prices for 2023, about 7%, followed by a smaller 2% fall in 2024.

Both lenders said the first signs of growth would start to emerge only in 2025, with Lloyds economists predicting a 2.3% increase in house prices that year and Santander expecting a 2% rise.

“The housing market in 2023 has been a little bit softer than we saw in previous years,” Lloyds’ chief financial officer, William Chalmers, said. “Having said that, as you know, there has been an increase generally in the housing market for several years to date, so we’re retracing a part of those steps.”

Meanwhile, Lloyds said its finances were being squeezed as it started paying higher interest rates to its savers.

It said its net interest margin, a key driver of bank income and accounts for the difference between what is charged for mortgages and paid on savings, narrowed from 3.14% to 3.08% from July to September. Lloyds blamed that on “expected mortgage and deposit pricing headwinds”, and Chalmers said the decline would continue into the following quarter.

Similar trends have weighed on Barclays, which on Tuesday revealed that its net interest margin had dropped and would fall further over the final three months of the year. Barclays’ chief executive, CS Venkatakrishnan, said the bank had been “very disciplined and prudent and passed through interest rates to customers”.

Competition has forced lenders to reduce costly mortgage rates while paying more for deposits as savers increasingly shop around for more lucrative returns.

It follows pressure from regulators and politicians, who this year accused banks of failing to pass on interest rate rises to their savings customers at the same speed they were increasing charges for borrowers.

Lloyds still managed to report a rise in pre-tax profits to £1.9bn for the three months to September, up from £576m a year earlier. However, that figure has been restated to align with new accounting rules.

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