Lloyds predicts house prices will keep falling until 2025

Lloyds has warned that the UK’s house prices will continue to fall until 2025 as the economy faces higher interest rates for longer.

The UK’s biggest mortgage lender said it expects house prices to decline by 4.7% this year and by 2.4% in 2024, before recovering slightly by 2.3% in 2025.

The banking group, which owns Halifax, revised its forecasts as it reported its third-quarter results with pre-tax profits of £1.9bn.

That’s up 15% from the previous quarter and more than triple the amount for the same period last year.

Lloyds attributed its strong performance to higher interest rates, which have boosted its net interest margin – the difference between what it pays to borrow and what it charges to lend.

Bank of England’s base rate will peak at 5.25%

Lloyds’ chief financial officer, William Chalmers, said he believes the Bank of England’s base rate will peak at 5.25%, rather than the previously expected 5.5%.

He said this would ease some of the pressure on mortgage holders and added: “The housing market in 2023 has been a little bit softer than we saw in previous years.

“Having said that, there has been an increase in the housing market for a number of years to date.

“We’re retracing a part of those steps. On balance, if you track back to pre-pandemic times, the housing market would be net up over that period of time.”

Lower-than-anticipated rise in interest rates

Lloyds said the lower-than-anticipated rise in interest rates will also support the economy and the jobs market.

The business expects GDP to grow by 0.4% this year, double its earlier forecast of 0.2%, before accelerating to 0.5% in 2024 and 1% in 2025. This is up from 0.3% and 0.7% previously.

At the same time, unemployment will hit a peak of 5.1% in 2025, Lloyds predicts.

However, Santander forecasts a bigger decline in UK house prices for 2023, at about 7%, and a smaller dip in 2024, at 2%.

Though the bank agrees with Lloyds that the housing market will start to recover only in 2025, with Santander projecting a 2% increase in house prices.

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