House prices to drop by ‘double digits’ in a prolonged slump

Economists have sounded the alarm over the future of UK house prices by forecasting a significant decline of 12% by the end of next year.

The predictions come amidst growing concerns that the housing market will fail to bounce back from the impending downturn, largely down to soaring interest rates.

S&P Global Ratings, a prominent US credit rating agency, has expressed doubt over any strong recovery on the horizon.

Their analysis indicates that mortgage owners and prospective buyers will continue to struggle with higher borrowing costs for an indefinite period.

It says house prices will fall by 6.6% this year, and by another 4.9% next year.

Buyers will continue to face higher real costs of borrowing

Boris Glass, a senior economist at S&P, said: “Even when central banks ease again, mortgage holders and potential buyers will continue to face higher real costs of borrowing that will take a larger share out of their budget and moderate demand for the foreseeable future.”

S&P is also predicting tepid growth of 1.4% in 2025, and 3% in 2026, respectively – but that won’t help those borrowers who haven’t yet remortgaged under higher rates.

The firm warns: “There is still some time to go before mortgage pain reaches its peak.”

House prices falling by 10% until the end of next year

The prediction by S&P has been echoed by credit rating firm Moody’s which predicts house prices falling by 10% until the end of next year – again fuelled by rising mortgage rates.

It says too that the UK’s property sector would be the worst hit of the big, developed economies if a predicted house price of 4% this year and 6% next year actually happens.

Moody’s senior vice-president, Madhavi Bokil, said: “We expect the Bank of England, faced with the responsibility to bring stubbornly high inflation down, to maintain a tight monetary policy stance through 2024.

“The effects of interest rates on housing demand in the UK are therefore likely to be acute and prolonged.”

One of the big issues is that most homeowners haven’t been affected by interest rates rising from 0.1% to 5% but with more than 1 million people renewing their mortgages in the second half of this year, that will change.

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