Will there be a house price crash? | The Sun

HOME prices have been falling recently but you may be wondering if it will lead to a crash.

It comes as mortgage rates have risen dramatically in recent months,causing some movers to pause their plans.

Generally, you’d need to save at least 5% of the cost of the home you’d like to buy for the deposit – although there are exceptions.

With the cost of living crisis squeezing incomes for homeowners and first-time buyers alike, moving may be at the bottom of the list of concerns.

Property prices surged last year due to a surge in demand at the end of the stamp duty holiday.

This could be attributed to Covid-19 and a lack of homes.


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At the start of December, Rightmove reported that the average asking price dropped to £359,137 – down by £7,862 from the previous month.

In January, Rightmove's data showed that house prices rose by 0.9% – to £362,438. 

More recently, according to the property website, the average asking price remained nearly flat, rising by £14 in February to £362,452.

Rightmove said it is the smallest increase it has recorded between January and February, in records going back to 2001.

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However, average asking prices are still at least £8,720 lower than the peak in October.

Nationwide, one of the country's biggest mortgage lenders, predicts prices are set to fall 5% in 2023 as the property market cools.

And in May, Halifax reported that the average house price fell by about £1,000 in April, following three months of increases.

The drops come even after the government announced a permanent cut to stamp duty in a bid to boost economic growth.

Before the cut, no stamp duty was paid on the first £125,000 of any property purchase.

That's now double at £250,000 for all home purchases.

The threshold at which the duty was paid for first-time buyers was £300,000. But that is now £425,000.

The maximum value of a property on which first-time buyers’ relief can be claimed also increased from £500,000 and is now £625,000.

But property prices came under immense pressure after mortgage rates shot up following the disastrous mini-Budget and amid rising inflation, which sat at 11.1% in October.

The Bank of England (BoE) also hiked its base rate to 4.25% in March, piling pressure on homeowners with mortgages.

It is the 11th time in a row that the BoE has raised its base rate.

After the Mini-Budget, it had warned that interest rates would hit 6% next year, which caused mortgage lenders to hike fixed bills.

More recently, it said it expects interest rates to max out at 4.5% in the middle of 2023 and fall back to 3.25% in three years' time.

So with all this going on, what does it mean for house prices, and will there be a crash any time soon?

Will there be a house price crash?

The last time property prices crashed was during the global financial crisis.

UK house prices reached an average of £190,032 in September 2007 and had dropped to £154,417 by February 2009 – a fall of more than 18%.

They did not regain that peak until August 2014.

Rising interest rates, which have caused mortgage rates to skyrocket, will mean house prices are likely to drop over the next couple of months.

And the Bank of England does expect the recent falls in house prices to continue due to higher mortgage rates.

Terry Fisher, property expert at We Buy Any Home, previously said: "Although the UK isn’t in a recession yet, analysts predict that a recession is expected this year.

"Add these higher interest rates to the rising cost of living and lack of salary growth, and it’s easy to understand why potential buyers don’t want to risk buying a new home during this time.

"In fact, as fixed-rate mortgages are at their highest in recent years, many buyers, especially first-time buyers, are being priced out of homes that should have been affordable."

He added: "A key factor for the initial spike is the strong demand surpassing the limited housing, which resulted in many homes achieving much more than their initial asking price.

"This housing supply shortage remains, however as mortgage rates are putting buyers off, the likely outcome is the prices will start levelling off instead of crashing."

Of course, no one can predict for sure what will happen to house prices, but here's what experts say is going on the market right now.

The Office for Budget Responsibility (OBR) economic forecast previously predicted that house prices could fall 9% by 2024.

The OBR expects average interest rates on the stock of outstanding mortgages to peak at 5% in the second half of 2024, the highest since 2008.

It will then fall back slightly to 4.6% by the end of 2027.

The OBR says that these predictions are just a forecast though and could change – but there is still "significant uncertainty".

Tim Bannister, Rightmove’s director of property science, previously said: “The big question [in February] was whether we would see new sellers increasing their asking prices, as has been the yearly norm as we approach the spring selling season.

“The flat average asking price indicates that many sellers are breaking with tradition and showing unseasonal initial pricing restraint.

“In addition to market conditions demanding greater realism on price, we are transitioning into a slower-paced market, where buyers will take longer to find the right property at the right price due to the higher cost of servicing a mortgage.

“There are other indicators that this will be a softer rather than a hard transition despite the turbulence at the end of 2022."

But in its latest economic outlook, Lloyds Banking Group has said it expects house prices to fall by around 8% in 2023.

The banking group owns Lloyds, Halifax as well as Bank of Scotland and is the UK's biggest mortgage lender.

In an update to its economic forecasts, the bank said it believes the Bank of England (BoE) base rate will reach 4% by the end of the year.

It's always worth noting that predictions are just that and that no one can say for sure.

But if inflation improved and interest rates stabilise, Lloyds said house prices could fall just under 3%.

A cut to stamp duty by the government could boost house prices.

But the government has confirmed that it will axe the stamp duty cut from March 31, 2025.

Our mortgage payment calculator can help you work out how much you can afford to borrow to buy a home.

And our My First Home series reveals each week how first-time buyers have got a foot on the ladder.

Do you have a money problem that needs sorting? Get in touch by emailing [email protected]

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