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Economists warn that UK house prices will not recover after the slump as interest rates remain higher than in the past decade.
According to S&P Global Ratings, average UK home prices are expected to fall 12% from high to low by the end of 2024.
It warned of “little prospects” for a strong recovery as mortgage holders and buyers continue to face higher real borrowing costs “for the foreseeable future.”
The report forecasts that UK house prices will fall 6.6% in 2023 and a further 4.9% next year. S&P expects the market to stagnate after that, growing just 1.4% and 3% in 2025 and 2026, respectively.
The worst of the rising interest rate pain is yet to come, S&P warned, adding that pressure “will intensify” as higher rates continue to pour into the mortgage market, hurting homeowners as their fixed-rate contracts come to an end.
“It’s still some time before the mortgage pain reaches its peak,” he said.
Boris Glass, senior economist at SP Global, said homeowners were unlikely to get any relief even if interest rates started to fall after 2024.
“Even if central banks ease monetary policy again, mortgage holders and potential buyers will continue to face higher real borrowing costs, leading to a larger share of budgets and moderate demand for the foreseeable future,” he said.
Moody’s also expects UK house prices to fall, but has left the figure unchanged at 10% through the end of 2024 as rising mortgage rates put pressure on house prices.
Moody’s expects the booming UK housing market to fall 4% this year and 6% in 2024, putting the UK’s real estate sector in the worst position among the developed world.
“We expect the Bank of England to face the responsibility of containing persistently high inflation and maintain a tight monetary policy stance through 2024,” said Madhavi Bokhil, senior vice president at Moody’s.
Over 90% of UK mortgage holders have a fixed contract between 2 and 5 years. While the vast majority of homeowners have yet to see interest rates rise from 0.1% to 5% due to the length of their loans, more than 1 million will have to renew their loans in the second half of this year.