Will there be a house price crash?

epa10283431 Sign for properties for sale in London, Britain, 03 November 2022. The Bank of England on 03 November raised its interest rates by 0.75 percent to reach 3 percent in an attempt to curb rising inflation. The UK witnessed its highest interest rate in fourteen years. EPA/ANDY RAIN

HOUSE prices have been rising, but could they start to fall back?

Mortgage rate are on the rise which could cause potential home movers to pause their plans.

House prices could continue to fall

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

And in November, Rightmove reported that the average asking price dropped to £366,999, a 1.1% change.

Nationwide reported that the average house price in October stood at £268,282 but the average asking price on a property hit £371,158 in October, according to Rightmove, with a number of factor driving the growth.

The average price a house was sold at in August, according to Land Registry, was £295,903, a 0.9% rise from the month before and bear in mind that this was before the mini-Budget caused prices to fall.

Meanwhile, the average price of a house in September stood at £203,835, according to Halifax.

A cut to Stamp Duty will continue until 2025, saving buyers some money.

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.

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 in 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.

As we mentioned above, the average asking price on a property hit £371,158 in October, according to Rightmove.

That’ s an increase of 0.9%, or £3,398, on September and a 7.8% increase on the same time last year and according to Rightmove, there is little sign of downwards price pressure on existing properties for sale. The number of homes seeing a reduction in the month crept up by 2% to 23%.

House prices can fluctuate from one month to the next by small amounts, and based on the season, for instance demand can drop over Christmas pushing down prices.

And 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.

In the Office for Budget Responsibility (OBR) economic forecast it 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, there is still “significant uncertainty”.

Tim Bannister, Rightmove’s director of property science, said: “What’s going to happen to house prices is understandably on the minds of many home-movers right now, especially following the market uncertainty after the government’s mini-budget.

“There has been no immediate effect on prices, but the trend of a slight softening in the pace of growth continues.

“New sellers coming to market in the month have been pricing strongly, and the number of homes that were already on the market seeing a reduction in price is still well below the long-term average.

“It will take a bit of time for the market to settle in to a new, more ‘normal’ level of activity following over two years of market frenzy, especially with new developments happening almost daily at the moment.”

Robert Gardner, Nationwide’s chief economist, said: “October saw a sharp slowdown in annual house price growth, to 7.2% from 9.5% in September.

“The market has undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates.

“Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.”

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

When ex-Chancellor Rishi Sunak slashed the tax on properties to kick start the housing market after the coronavirus lockdown.

It created a mini-boom,  pushing up house prices by 8.5%, on average according to the Office for National Statistics.

And Chancellor Jeremy Hunt confirmed that the previous cut to stamp duty will remain in place, despite reversing a number of measures put forward in the mini-budget.

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 – like the two best friends who teamed up to buy a £505,000 first home.

Did you miss our previous article…