Experts predict delay in real-terms growth in property prices, with government unlikely to intervene to boost prices in upcoming Autumn Statement

Property prices in the UK are expected to experience real-terms growth in two or more years, as higher mortgage rates and cost of living pressures continue to drive down property values. The latest data from Nationwide building society reveals that house prices are currently 5.3% lower compared to August last year, representing the largest annual decline since 2009. Experts in the mortgage brokering and housing market sectors suggest that real house price growth, which is higher than inflation, may not occur until 2025 or even later.

Government Prioritizes Other Economic Metrics

Monitoring the property market, the Treasury and Bank of England economists consider it a lower priority compared to other metrics such as inflation, unemployment, and wage price growth. A senior Government source commented that the decline in average house prices was in line with the forecasts of the Office for Budget Responsibility, stating that it was not a surprise to economists.

Support Targeted at Struggling Groups

Rather than targeting asset prices, insiders believe that any further economic support from the government is more likely to focus on aiding vulnerable groups struggling with their regular housing costs. Richard Donnell, research director at Zoopla, indicates that data suggests the property market would need mortgage rates of around 4% or lower for there to be real-terms price growth. Typically, these rates are found in 5-year fixes and require a 25% deposit.

Delayed Drop in Mortgage Rates

Nicholas Mendes, of John Charcol brokers, forecasts that the current 5-year mortgage rates, currently averaging at 6.15%, could potentially drop below 4.5% by the end of 2024. However, rates are not expected to reach 4% until around May 2025, largely attributed to the forecasted base rate of 5.5% this month. External factors such as the duration of the Ukraine war and the outcome of the upcoming general election could potentially affect the timeline of these predictions.

Housebuilders Report Negative Results

Housebuilders in the UK have recently reported negative results, raising concerns about the property market’s condition. Major companies such as Persimmon Homes, Bellway, Barratt, and Berkeley have announced reductions in the number of homes built and a decrease in property reservations. Heather Powell, head of property at tax and advisory firm Blick Rothenberg, emphasizes the need for government action to revitalize the property market, as continued price falls indicate a slow recovery for industries dependent on a healthy property market.

Homeowners Capable of Weathering Market Turbulence

Despite the market challenges, a finance industry source expresses optimism regarding homeowners’ ability to withstand the turbulence. The source highlights that stress tests have proven effective, allowing most homeowners to maintain some financial flexibility after paying their mortgages, even with an increase in interest rates in recent years.

Decreasing Mortgage Rates

Although current mortgage rates are higher compared to previous years, they are slowly decreasing. The average five-year fixed-rate sits at 6.15%, according to MoneyFacts. However, there are cheaper deals available, especially for individuals with high amounts of equity or large deposits.

In conclusion, the UK property market is facing a delay in real-terms price growth due to higher mortgage rates and cost of living pressures. Experts suggest that real house price growth may not occur until 2025 or later. While the government considers the property market a lower priority, economic support is expected to be directed towards vulnerable groups struggling with housing costs. Housebuilders have reported negative results, calling for government intervention to invigorate the property market. Nevertheless, homeowners are deemed capable of withstanding market turbulence, thanks to effective stress tests. Although mortgage rates remain high, they are gradually decreasing, offering more affordable options for certain individuals.