'House prices will fall 5% in 2023 but some markets will outperform'

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'House prices will fall 5% in 2023 but some markets will outperform'

House prices are expected to fall across the board as mortgage rates skyrocketed this summer, but not all properties will feel the crunch in the same way, says Hina Bhudia.

The partner at Knight Frank Finance says there are areas, particularly in the capital, that will experience a softer blow and could stabilise as early as 2024.

In a Q&A with FTAdviser In Focus she explains what's in store for the property market as the country weathers the economic storm, and why interest from overseas buyers is likely to persist.

FTA: Have you noticed buyers holding off since the summer?

HB: Buyers have become more cautious in recent weeks, particularly since two-year fixed rate mortgages moved above 6 per cent.

The market is still busy, but buyers are particularly eager to save money on their mortgage wherever they can.

Most bills are rising and the mortgage is one of the only places where you can potentially knock hundreds of pounds a month off your outgoings by shopping around and seeking good advice.

FTA: Are house prices actually dropping, or are they still holding up? Will we see that 20 per cent drop?

HB: On a monthly basis, UK house prices have just started to soften, but each market and property type is going to fare differently. Our forecasts suggest UK house prices will fall 5 per cent in 2023 and again in 2024 before returning to growth.

Various factors will keep a floor under pricing, from the shortage of homes to regulations introduced since the global financial crisis that have kept higher loan-to-value lending at sensible levels. Plus, the unemployment rate is likely to remain low relative to previous crises, which will keep forced sellers at a minimum.

Hina Bhudia is partner at Knight Frank Finance

 

 

The mortgage is one of the only places where you can potentially knock hundreds of pounds a month off your outgoings.

 

 

 

Some markets will outperform. We expect prices in prime central London to fall 3 per cent before flattening out in 2024, for example. Homes in prime central London will be more insulated from rising rates due to higher levels of affluence and housing equity as well as a broader base of returning international buyers.

FTA: Is it a buyers' or a sellers' market right now? Or nobody's?

HB: The market is finely balanced. There is a recognition among sellers that prices are softening and it makes sense to ensure any home is priced correctly – pragmatism from sellers makes sense when the buying power of borrowers is being eroded by rising interest rates.

Having said that, there is a real urgency among those that want to buy. Most mortgage offers are valid for six months and in the majority of cases not getting a deal done within that time frame means renegotiating a new deal at a higher interest rate.

FTA: Who is doing most of the moving right now? Remortgagers, home movers or first-time buyers?

HB: We were seeing huge numbers of requests for product transfers, so clients were trying to secure a new rate with their existing bank.

Borrowers continue to be hugely engaged and want to lock in deals in plenty of time, which is the right approach in the current market. Purchasing activity has started to cool.

We do expect an uptick in international customers looking to acquire homes at attractive prices.

FTA: Some brokers have cited a drop in foreign ownership in the UK housing market. Does this indicate a downturn in the housing market?

HB: We haven't noticed any drop off in interest from overseas buyers, in fact we usually see the opposite. The UK housing market is viewed by overseas buyers as an attractive long-term investment and during periods of volatility, we do expect an uptick in international customers looking to acquire homes at attractive prices.

That's particularly the case amid periods of softening in both capital values and sterling.

FTA: Are clients worried about what is happening with government economic and tax policies?

HB: Some clients have expressed worry and are waiting to see how central banks develop their approach to interest rates through November.

The spike in mortgage rates following the "mini" Budget brought home how quickly volatility can spread from financial markets into the outgoings of consumers and I think that alarmed people.

Solicitors are under pressure at the moment.

Having said that, we are seeing some of the major lenders drop rates on some products. Pricing in financial markets has brought down predictions of a peak base rate to less than 5 per cent, from more than 6 per cent a few weeks ago. If that remains unchanged, which admittedly is a sizeable 'if', we could be nearing peak mortgage rates.

FTA: What sort of time to completion are people looking at, on average? Does this differ in rural areas compared with urban areas?

HB: Solicitors are under pressure at the moment, particularly at some of the larger companies and particularly when it comes to remortgages. It's hard to put an average period because there is so much variation.

simoney.kyriakou@ft.com