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UK HPI June 2022 – “we could see a 5%-10% fall in house prices over the course of the next year” – reaction from property experts

Following the UK House Price Index (June 2022), property experts have reacted.

Ryan Joyce, director of Nottingham-based independent mortgage broker, Key Mortgages“While the June annual growth rate has been skewed by the stamp duty holiday, it almost certainly reflects the general direction house prices will be headed given the extreme economic headwinds ahead. Though there’s still demand for property, with first-time buyers particularly active, we could see a 5%-10% fall in house prices over the course of the next year. The primary reason for the downward pressure on prices will be mortgage companies lending less due to the sharply rising cost of living and displaying broader caution amid the deteriorating economic climate. House prices will have to come down to meet those lower lending limits. It’s as simple as that. I do not see the immense property crash happening that some are predicting as the jobs market is still fairly robust for now and supply is limited. But with inflation now in double digits, prices will almost certainly come down during the turbulent twelve months ahead. But as ever with the housing market, sooner or later values will start to rise again.”

Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com: “I’ll be surprised if house prices don’t plummet at least 5%-10% over the next 12 months. Property prices are unsustainable in the current economic climate. It doesn’t matter that there’s a shortage of property, because buyers can only afford to pay what they can afford to borrow. And borrowing is getting a lot more expensive, along with everything else. We can’t go on pretending that ever-increasing house prices are a good thing. In London, property is priced at 11 times average earnings. Ordinary people and the young are being priced out of owning their own home by inept politicians, only too happy to ignore this economic vandalism if it wins them votes. Let’s just hope the house price balloon deflates before it pops.”

David Robinson, chartered wealth manager at London-based Wildcat Law: “Even though inflation is now in double digits, erosion rather than a landslide is the best way to describe what will happen to house prices over the coming 12 months. Due to most houses in the UK being owned by those aged 55 and above, we are unlikely to see a wave of defaults in the same way as the early 90s even if the cost of living really hits home and unemployment starts to increase. What we are likely to see is a very stagnant market place with few looking to sell. This means house prices are unlikely to fall significantly with the exception of some over priced recent builds. In 12 months’ time, house prices will roughly be at the same level that they are today, reflecting a real reduction due to inflation. If the government fails to get control of the situation, the longer 24 month picture is not so rosy, though. As people come off 2-year fixed rates and are forced to pay far higher mortgage payments, we could see forced sales. Likewise, if unemployment rises sharply then all bets are off and we should be prepared to see double digit percentage falls across the country.”

Paul Neal of Derbyshire-based Missing Element Mortgage Services: “There is only one direction house prices can go, and that’s down, all the more so with inflation now in double digits. Even then, there will be a gradual reduction in the rate of price growth rather than a drastic fall due to supply issues. With the cost of living crisis really hitting hard, people can no longer afford to be hitting the top of their budgets and the balance of power is shifting back to buyers quite rapidly now. Sadly, it will be bad news on both sides, with vendors selling for less and buyers paying less but at higher mortgage rates. If there are any winners, it will be the cash buyers.”

Jonathan Burridge, founding adviser at hybrid mortgage adviser, We Are Money: “I don’t agree with the rose-coloured view being expressed by many, including the Bank of England, that property prices are cast-iron and will not dive. This message is being aired for reassurance. If we hit a full-blown recession then the demand to move home will be affected. Every pundit expressing a positive view cites “supply and demand” as the main driver for property prices. If demand drops, so will prices. Those predicting a 20%-30% reduction in house values are being too pessimistic. That’s a highly unlikely scenario. Any reduction will be short-lived, relatively speaking, and therefore anyone buying property now needs to be looking at the longer term, seeing past any approaching dips.”

Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “If house prices do fall, it will only be by 2%-3%, and the rationale is pretty simple: we currently have an acute housing shortage, which will support prices. Moreover, if sterling weakens further, that will likely be met with foreign money piling back into UK property as it becomes more attractive. All in all, though the rate of price growth will almost certainly slow in the short term, a crash is not on the cards.”

Mark Hosker, director of Bradford-based mortgage broker, Cyborg Finance: “In most areas, we’re predicting continued but steady growth in house prices. Certainly nothing like the growth we have seen over the past two years. The country’s ongoing economic woes will almost certainly reduce demand though a shortage of available housing will support prices to an extent. How conservative lenders get will be critical to house prices as that will impact what people can borrow.”

Rhys Schofield, managing director at Belper-based Peak Money“Over the next year, the rate of growth will slow for sure but anyone suggesting a crash will happen is living in cloud cuckoo land. We still have a drastic shortage of available housing stock and the alternative to buying is renting, where the supply and demand issue is being felt even more keenly. What is certainly adding value to houses is energy efficiency. There is growing data to show that an energy-efficient home is worth significantly more than one that isn’t. If you want to ensure you’re maximising the value of your property, making it energy-efficient is a wise investment. For the average home, making it energy-efficient could be a real hedge against falling prices.”

Simon Shinerock, chairman of Horley-based Choices Estate Agency“The current backdrop of high consumer price inflation at a much higher level than salary inflation, combined with increasing interest rates and the consequent squeeze on affordability, you would expect property prices to correct downwards over the coming months. It’s hard to argue with the stark reality of families facing a winter where fuel and energy prices could be at crippling levels. However, if inflation drops dramatically over the course of the next year, international tensions ease and supply lines come back in earnest, we could avoid a recession, or at least a bad one. If this optimistic outcome does occur, interest rate rises would slow quicker than expected and house prices could hold up much better than expected.”

Rob Gill, founder of London-based Altura Mortgage Finance: “Demand for property remains strong with many homemovers still seeking to make changes to location and lifestyle due to the pandemic. While the pressures of the cost of living crisis have yet to peak, we expect the ongoing demand to keep property prices firm. It’s worth remembering that property is a classic ‘inflation hedge’ which, in times of high inflation, tends to spur demand amongst investors. Overseas investors are further attracted by the weak pound and are seeking to invest in UK property as a currency play. Overall, despite the expected weakness in the UK economy, we expect a modest rise of 2%-3% in UK property prices over the next 12 months.”

Samuel Mather-Holgate of Swindon-based Mather & Murray Financial: “A year from now, I think house prices will have stayed stubbornly high. Despite the highest inflation in 40 years, and further interest rate rises, rates will still be at an historically low level. Before the financial crisis of 2008/09, the previous two decades had interest rates between 4-6%. That is where we should aim to get back to. Inflation has pushed the cost of renovating houses up. Homeowners won’t want to make a loss when selling houses, so I predict transaction levels will go down but prices will remain stagnant. House price affordability is still good, even with rising interest rates. It won’t be a repeat of the financial crisis and I think that repossession levels will remain low.”

Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages“The market still feels busy. We’re seeing an influx of customers who have been searching for houses for over six months finally secure a home. Only a few months ago, these people were continuously being outbid, which suggests demand is dropping off. New homes sadly aren’t being built quick enough and the proposed quota is never achieved. Many developments get stuck in planning for years and until there is a quicker process to get sites approved the ambitious plans for a certain number of new homes won’t ever materialise.”

Imogen Sporle, Head of Term Finance at London-based Finanze“At the beginning of this year I was very much on the ‘housing market will crash’ bandwagon, however demand seems to be increasing for purchases, even with inflation already on this rise. This keeps me optimistic that house prices will continue to rise, likely more steadily at 2-3%, or plateau in a worst case scenario. One area of the market I do see having notable changes is that of new build homes, especially from smaller developers. The cost of materials is skyrocketing and has been for a few years now, as have labour costs. I think this will cause a large increase in the cost of new build properties by 5%-8%, which could then have a knock-on effect on the rest of the market.”

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