Real-terms growth in property prices could be two or more years away, experts are predicting, with the Government unlikely to intervene to help boost prices in the upcoming Autumn Statement, i understands.
Data from building society Nationwide this week showed house prices are 5.3 per cent lower compared to August last year, in the biggest annual decline since 2009.
Higher mortgage rates and cost of living pressures have led to falling property values, which many have suggested will continue later this year.
But although some small growth could come next year, mortgage brokers and housing market experts have said that real house price growth – which is higher than inflation – may not come until 2025 or possibly even later.
The Treasury and Bank of England economists have been monitoring the property market closely, but regard it as a lower priority than other metrics such as inflation, unemployment and wage price growth.
A senior Government source said the decline in average house prices had not come as a surprise because it was in line with the projections of the Office for Budget Responsibility. “What we are seeing is what economists expected,” the source said.
Any further economic support is more likely to be targeted at vulnerable groups struggling with their regular housing costs, rather than boosting asset prices, insiders believe.
Richard Donnell, research director at Zoopla, told i that data suggested the property market needed mortgage rates of around 4 per cent or lower – generally on 5-year fixes for those with a 25 per cent deposit – for there to be real-terms price growth.
“At 4 to 4.5 per cent rates you see house price track earnings growth and at 5 per cent you get real price falls,” he said.
Nicholas Mendes, of John Charcol brokers, said current forecasts showed five-year mortgage rates could get below 4.5 per cent towards the end of 2024, but that rates would not drop to 4 per cent until around May 2025 – almost two years away.
“This is based on the base rate peaking at 5.5 per cent this month. A higher peak could push this date back further,” he said.
“There are also so many unknowns that could throw this path off course including what happens in eastern Europe, and what happens at next year’s general election,” he added.
“Markets are assuming the Ukraine war will drag on for some time. If it ends quicker than expected that should ultimately help reduce inflation and hence interest rates, though this will probably only have a small impact within the timeframe of this forecast.”
The latest predictions come after housebuilders earlier shared a gloomy picture in recent results – and there have been calls for the Government to reinvigorate the property market.
Last month, two major firms – Persimmon Homes and Bellway – announced reductions in the number of homes built. In a statement this week, Barratt, Britain’s biggest housebuilder, said it had delivered 4 per cent fewer homes than the previous year and that the backdrop to the market would “continue to be difficult”.
Another major company, Berkeley, said reservations for its properties were down about 35 per cent.
Heather Powell, head of property at tax and advisory firm Blick Rothenberg, said continued price falls showed “how slow the recovery is going to be for industries that thrive on a healthy property market”.
She added: “The Government needs to act now to reinvigorate this essential element of the UK economy.”
A finance industry source expressed optimism at homeowners’ ability to weather the market turbulence, saying: “Even with a jump in interest rates over the last couple of years, stress tests are doing their job and most homeowners do still have wiggle room in their budgets after paying their mortgage.”
Mortgage rates are currently far higher than they have been in previous years but are starting to decrease slowly.
The average five-year fix sits at 6.15 per cent, according to MoneyFacts – though deals are available at far cheaper levels, particularly for those with high amounts of equity or large deposits.
