No crash in sight: UK house prices defy expectations of a fall

Economists have revised their forecasts for UK house prices, saying they will not fall this year as the property market defies expectations of a crash, the Telegraph reports.

Capital Economics, an economic research group, had previously predicted a 5% drop in house prices for 2023, but now says they will end the year with no change.

This follows data from Halifax and Nationwide which showed an unexpected 1.1% rise in house prices in October – the first increase after six months of decline.

The average price of a UK property rose by around £3,000 to £281,974, in October, according to Halifax.

The annual rate of house price growth is still down 3.2% but was down as much as 4.5% in September.

House price rise

News of the house price rise comes after the Bank of England decided to keep interest rates at 5.25% in November, giving some relief to mortgage borrowers.

However, mortgage rates have risen sharply over the past year, putting pressure on household finances.

Andrew Wishart, of Capital Economics, said the rise in mortgage costs had ‘not [been] sufficient to trigger the leg down’ in prices that they had expected.

He said the labour market was likely to remain supportive and lenders were being generous and not forcing borrowers to repay their debts.

‘Prices have not only stabilised but reversed’

Mr Wishart told the Telegraph: “House prices have not only stabilised but reversed some of the drop in prices seen in the third quarter.

“While it would be unprecedented for a rise in mortgage costs of the scale, we have seen not to result in house price falls, supportive labour market conditions and generous lender forbearance mean it is plausible.”

He added that if prices remained stable in November and December, then house price inflation would rise to zero by the end of the year.

Supply constraints were keeping prices buoyed

Jonathan Gordon, of property investment firm IP Global, said supply constraints were also keeping prices buoyed and with a shortage of new homes being built, demand is outstripping supply.

He told the newspaper: “Many buyers are sitting on their hands under the impression that prices will drop significantly, which is unlikely given supply constraints.

“Buyers holding out for prices to fall a lot more could find it backfires.”

He added: “With the Bank Rate being left on hold again last week, there is a chance prices may have bottomed or, at least, not be far off the bottom assuming inflation continues to fall.”