House price crash: 'Drop in demand' to trigger sudden 'slowdown' in market – new forecast

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Interest rates: Martin Lewis on affect on mortgage applicants

At the start of this month, the Bank of England hiked its base interest rate to 1.75 percent as part of attempts to control spiralling inflation, which surged beyond 10 percent in July and could hit 18 percent by January 2023. This will likely send mortgage interests higher and with household purse strings coming under pressure, and with costs and mortgage prices rising, the current high number of property buyers will likely plummet.

House prices in the UK have grown 60 percent in the past decade, and so as the cost of living crisis piles pressure on finances, experts are warning a dramatic downturn may be on the cards soon.

Real-estate firm Zoopla said the average UK house price has jumped 8.3 percent in the last year to £256,900, but industry experts have warned demand for new homes is weakening as soaring inflation, coupled with continuous rises in mortgage rates, begin to bite.

Some are warning Britain could soon be hit by a property market slowdown in the latter part of this year leading into the start of 2023.

First-time buyers are continuing to drive the housing market, accounting for more than two-thirds (177,000) of all property transactions in the UK.

house price crash warning

House price crash: A drop in demand could trigger a sudden ‘slowdown’ om the housing market (Image: GETTY)

house price crash

House price crash: Experts have warned a dramatic downturn could be on the horizon (Image: GETTY)

But current soaring interest rates and mortgage prices could mean they are hit hardest by these issues, with the average monthly mortgage payment up by a fifth (£163) since the start of the year – edging close to £1,000 a month.

The research from Zoopla warns rising interest rates will still have a knock-on effect on the housing market and could result in a slower pace of growth or even drop in property prices.

In addition, new figures from Rightmove showed a 13 percent jump in the number of sellers last month, injecting much-needed momentum in the housing market.

But more than half of properties are still selling at or over their final advertised asking price, and 98.9 percent of them are achieving their final advertised asking price, meaning many sellers are still looking to lower their asking price to close deals by Christmas.

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House price crash: Experts have warned the UK could be hit by a property market slowdown (Image: GETTY)

Simon Bath, CEO of iPlace Global, the creators of Moveable, warned: “The latest reports from Zoopla and Rightmove show clear signs that there could be a slowdown in housing market activity towards the end of the year.

“Although this is likely due to the fact that many people are currently on holidays, rising mortgage prices could also be a driving factor towards the drop in demand – particularly for first-time buyers, many who are really struggling to get onto the ladder in the current market conditions.

“It’s great that we are beginning to see an increase in the number of sellers, and we have proprietary research showing that almost a quarter of millennials are now looking to buy a home to develop, not to live in.

“Hopefully, this added stock can further help to put the brakes on rising prices over the next year, with less competition making it easier for first-time buyers to make their way onto the property ladder.

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uk interest rates

House price crash: Bank of England Governor Andrew Bailey (Image: GETTY)

“However, the Government must also ensure that they create new schemes to replace old ones like Help To Buy.

“With borrowing costs set to jump up even more, government assistance will be even more crucial to ensure that everyone gets the opportunity to step onto the proper ladder – even as prices continue to rise.”

Earlier this month, an expert warned house prices will most likely face an “abrupt correction” than a gradual downward turn as inflation and raised interest rates continue to impact what buyers can afford.

Nikodem Szumilo, Professor in economics of the built environment at UCL, warned it was “very clear that the market is heading downwards” after a decade of growth, but insisted there were differing opinions over how quickly that drop would occur.

However, after a stay of execution through the Government’s Covid measures over the past couple of years, it was more likely the housing market would face a “dramatic crash”.

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House price crash: A map showing the expected house price falls (Image: EXPRESS)

Dr Szumilo said: “Prices have been going up for a while, we know that the market is cyclical – so it is time for a correction. It has been time for a correction for a while.

“We expected the market to crash during the pandemic, because of a recession, because incomes were going to go down because people are going to lose jobs. A lot of this didn’t happen during the pandemic, but it seems to be happening now.

“The economic policies that the Government implemented delayed job losses, a recession and increasing interest rates. But clearly they didn’t stop them. All of this is happening now, and it is likely that this is going to affect the housing market.”

He added: “It’s been a while since we’ve had a slow correction in the housing market in this country, so I think it is possible that we will have a more dramatic correction. Looking at how strong the market is at the moment, it’s hard to tell.

“I think it’s very clear that the market is heading downwards at the moment, because raising interest rates [and] falling incomes usually lead to house prices going down. And again, this is something that we predicted before the pandemic and the Government was able to stop.”

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