Mortgage expert: House prices set for sustained fall

Property prices will fall for the rest of 2022 and over the course of 2023, reversing some of the post-pandemic gains, according to Ray Boulger, senior technical manager of John Charcol.

Annual house price growth stood at 11% in the year to July according to Nationwide’s House Price Index, but Boulger reckons monthly declines will bring this down to 3% by the end of the year.

And next year he thinks the slide will continue, with house prices falling by 5% over the course of 2023.

Boulger reckons house prices are going to be affected by the rising Bank of England base rate, which will in turn filter through to rising mortgage costs, and therefore lower buyer demand.

Ray Boulger

The issue of inflation in the UK is also causing affordability issues, driven by the much-publicised issue of spiralling energy costs.

Boulger said: “With the US picking up rates further, and with inflation getting worse than better, the short-term outlook in Bank rate is worse than we thought a month ago. That’s all very negative for the property market.

“While there’s talk of rates going up the bigger picture is increases in energy and mortgage costs.

“The faster that rates go up the more it’s going to impact prices. I think we’re going to see prices reduce over the next few months.

“I don’t see a mass of sell-offs. But some may feel like they need to sell.”

Boulger reckons the Bank base rate could hit 4% in the near future, while he’s predicting a second consecutive 0.5% increase next month, which would bring it to 2.25%.

He reasons that the Bank is under pressure to steeply increase the base rate thanks rising inflation and more aggressive Monetary Policy moves from the US Federal Reserve.

The Fed hiked its interest rate by 0.75% for the second time in a row in July to bring the rate to 2.25%-2.5%.

Landlords worst hit

Boulger reckons landlords are going to be particularly hard hit by rising mortgage costs.

He added: “It will have a bigger impact on landlords than homeowners because many are on interest-only mortgages.

“If you have an interest-only mortgage if rates increase from 1.5% to 3.0% the amount you pay doubles, whereas if you have a residential mortgage the bulk of your monthly payment consists of capital.

“It’s going to be a slow burn, as many landlords have taken out a 5-year fix.

“But it’s going to hit landlords wanting a new mortgage hard, while it’ll be a slow burn for the rest of the landlord market in the next few months and years.”

He added the only positive for investors is rents are also rising, but he wonders whether the issue of tenant arrears is going to worsen due to the spiralling cost of energy.

Boulger is critical of the government’s apparent inaction in mitigating the rising energy costs, as the price cap is set to surge by 80% in October.

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