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UK house prices expected to fall as ‘storm clouds gather’ over housing market

A poverty stricken area of Stoke on Trent, rows of terrace housing in a run down area of the country Surging mortgage rates expected to push house prices across the housing market downwards in the year ahead.
Surging mortgage rates expected to push house prices across the housing market downwards in the year ahead. Photo: Getty (Jonny Essex via Getty Images)

Surveyors warn that “storm clouds are visible” in the housing market, with new buyer inquiries falling for the fifth month in a row.

The Royal Institution of Chartered Surveyors (RICS) said surging mortgage rates expected to push house prices downwards in the year ahead.

“The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market,” RICS chief economist, Simon Rubinsohn, said.

“Even though the headline price balance remains in positive territory for now, storm clouds are visible in the deterioration of near-term expectations for both pricing and sales. Looking further out, the picture portrayed by the RICS survey has clearly shifted in a negative direction."

Read more: Bank of England warns UK households may face 2008 financial crisis mortgage strain

A limited supply of properties for sale is still supporting modest price rises, but this looks set to end as the pace of growth slows markedly, RICS said.

Estate agents on average are holding just 34 residential properties on their books, and the pipeline appears to have deteriorated further, with the number of new market appraisals falling overall.

Sales volumes have been falling for five months in a row and are at their worst levels since May 2020. Property professionals’ sales expectations over the next three months and 12 months remain negative.

A net balance of 18% of property professionals expect house prices to fall rather than increase over the next 12 months.

They cited expected further substantial rises in mortgage rates as a factor.

“For now, mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grows.

“However, as lenders have been a lot more cautious through this cycle, with high loan-to-value mortgages accounting for a much smaller share of the lending book than in the past, this should help to limit the adverse impact on the market,” Rubinsohn said.

In the lettings market, tenant demand has picked up alongside a fall in landlord instructions, the survey showed.

Read more: FTSE 100: Barratt warns outlook 'less certain' as mortgage deals dry up

As a result, near-term expectations point to further strong growth in rental prices over the coming three months.

The average two-year fixed mortgage rate on the market on Wednesday this week was 6.46%, according to Moneyfacts.co.uk, while the average five-year fixed deal was 6.32%. Both of these average rates are the highest since 2008.

“The sharp rise in mortgage rates in recent weeks has put huge additional pressure on households on variable rates or anyone due to remortgage soon. Many people will now be feeling very anxious that they’ll be unable to make their monthly payments,” Sam Richardson, deputy editor of Which? Money, said.

“If you’re struggling to pay your mortgage bills, talk to your lender as they can help you get your payments back on track.

“Support measures they could offer include a temporary payment holiday, lengthening the term of your mortgage to cut your monthly instalments or switching you temporarily to interest-only repayments,” he added.

Watch: Will UK house prices ever fall?