House Prices Will Fall But This Is Not ‘a Cliff-Edge Moment’ For Housing Market

Tom Bill

The recent slowdown in the UK housing market was almost certainly magnified by the impact of the mini-Budget and accompanying mortgage market volatility that has now begun to recede, according to Knight Frank.

But while buyers hesitated and asking prices were reduced against what the firm describes as “a disorientating backdrop”, whatever happens next in the market will be “more gradual”.

“That’s not to say we don’t expect prices to fall as mortgage rates rise,” said Tom Bill, head of UK residential research at Knight Frank. “However, unlike the global financial crisis, there is no reason to think there will be a cliff-edge moment.”

While some property transactions may fall through in the coming weeks, Bill points out that the pipeline going into the final quarter of the year “is in decent shape”. Indeed, the number of offers accepted across the UK in October was the tenth highest figure in a decade, Knight Frank data shows.

Bill commented: “Some buyers and sellers are even motivated by the fact rates are rising. Decisions to sell have been brought forward and buyers are keen to transact while favourable mortgage offers made several months ago remain valid.

“Either way, it looks likely that house prices will only come under more pressure after Christmas, as the impact of higher rates spreads. However, that doesn’t mean we expect a wave of forced selling leading to precipitous price declines.

“Lenders are more insulated than they were during the global financial crisis [GFC]. Mortgage capital and interest payments as a % of income was 17.7% in July this year compared to more than 23% at the end of 2007, UK Finance data shows.

“After house price growth of 25% during the pandemic, negative equity will be limited.”

He added: “So, this doesn’t feel like a re-run of the GFC, when prices dropped 18% in the year to February 2009.

“Instead, the housing market is on a particularly erratic path back to normality. The next bump in the road could be the autumn statement later this month, although thankfully for anyone buying a house or re-mortgaging, the impact is likely to be less dramatic than September’s mini-Budget.”

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