Lloyds’ baseline economic prediction sees house prices falling 8% in 2023, 17% in a ‘harsh’ scenario

Banking giant Lloyds forecasts house prices may fall 8% next year, but says they could fall almost 18% in a “severe” scenario.

  • Bank report includes predictions for house prices in 2023
  • Even in the bank’s best case, prices fall 2.7% next year.
  • Capital Economics has forecast a 12% drop while Credit Suisse forecasts 15%
  • House prices continued to rise over the summer despite rising interest rates

House prices are expected to fall 8 percent next year, but could fall as much as 17.9 percent, according to Lloyds Bank.

In its third-quarter update, the lender laid out its expectations for home prices under different economic scenarios. In the best-case or ‘upside’ scenario, prices fall by just 2.7%, compared to the ‘base case’ of 7.9% and the ‘severe drawback’ of 17.9%.

The base case, which represents what the mortgage lender believes is most likely to happen, would bring home prices to where they were in mid-2021.

Lloyds Bank, the UK’s biggest mortgage lender, has said house prices may fall 8% by 2023

“Severely disadvantaged” conditions would see house prices continue to fall through 2026, he said, averaging an annual decline of 10 percent.

For the worst case scenario to happen, inflation would have to rise to 14.3% next year. It is currently at 10.1 percent.

In a ‘down’ situation, prices would fall by 12.9% next year and would also continue to fall until 2026 with an average price deflation of 5.5% over the period.

Lloyds, which is Britain’s largest mortgage lender, posted a pre-tax profit of £1.5bn from July to September, which is below the average analyst forecast of £1.8bn provided by the bank and 26 per cent. less than the £2 billion a year earlier.

The results were affected by a £668m provision set aside to cover potential future bad loans, which he said reflected poor economic prospects.

Lloyds’ predictions are in line with other analyst and bank estimates. House prices are expected to fall 12% by mid-2024, according to analysts at Capital Economics, while Credit Suisse expects prices to fall as much as 15%.

Oxford Economics chief economist Andrew Goodwin says that based on the cost of mortgages, house prices are overvalued by as much as 37 percent and prices are likely to fall by around 10 percent year-on-year.

Return in mid-2021: House prices are forecast to fall 7.9% next year under Lloyds' base case

Return in mid-2021: House prices are forecast to fall 7.9% next year under Lloyds’ base case

Going down?  Lloyds forecast sees house prices falling until 2026 in half of its scenarios

Going down? Lloyds forecast sees house prices falling until 2026 in half of its scenarios

“Our new forecast will show a 10 percent drop in house prices year over year,” he told This is Money. “About 13 percent from peak to trough over the next two years and compared to that measure of mortgage affordability.”

Any drop in property prices will come after a period of skyrocketing home price inflation. Despite the uncertain economic conditions, house price inflation reached 13.6% in August, according to the ONS, which predicts that the median house price could reach £300,000 by the end of the year.

Prices are held high by continued demand, although there are signs that activity is beginning to slow.

Homebuilder Barratt revealed in a business update that average new home bookings stood at 181 per week, down a third from the 281 per week seen in its last full financial year.

Author Fred Harrison, who accurately predicted the last two home price crashes, stands by his prediction of the 2026 home price crash.

Until then, Harrison believes they will continue to rise, although not at the same rate as the past two years.

“I will stay in the cycle of rising house prices at the end of 2026,” Harrison told This is Money, “subject to Putin not launching a nuke, at which point, all bets are off.”

“There will be no drop, just a slowdown of the rate of increase over the rates achieved during the Covid period.”

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic..

Banks and building societies continue to lend and mortgages are still being offered and applications accepted.

However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a house?

Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for