Lloyds and the Property Price Downturn5 Feb 2023 11:58
“The property market crash is well under way.
Figures published this week by Nationwide confirmed that house prices have now fallen for five months in a row, the longest stretch since 2009.
Values are down by 3.2pc compared to their August peak, meaning the average home is now worth £15,454 less than at the end of the summer.
Analysts believe the current house price slump will not be as big as the one suffered during the financial crisis – but the downturn will last much longer.
During the credit crunch, house prices fell for 16 consecutive months, according to Nationwide. This time, analysts at Oxford Economics expect the slump to last 24 months.
Britain is set for a more drawn out property crash because of changes in the mortgage market, which mean the pain of higher interest rates will filter slowly through the market rather than hit all at once.
However, while the slump will be prolonged, Oxford Economics forecasts prices will only drop by 12pc peak-to-trough, compared to the 18pc crash recorded from 2008 to 2009.
Andrew Goodwin, of Oxford Economics, says: “We think the much higher share of fixed rate mortgages now will limit the fall in prices and make it less steep, but more prolonged.”
So far, the market has been remarkably protected because unemployment is low and a very high share of homeowners are on fixed rate mortgages.
“The biggest driver of house price falls is the extent to which people are forced to sell. That happens either if they lose their job or if the cost of their mortgage is too big to keep going,” says Mr Goodwin.
Andrew Goodwin, of Oxford Economics, says: “We think the much higher share of fixed rate mortgages now will limit the fall in prices and make it less steep, but more prolonged.”
So far, the market has been remarkably protected because unemployment is low and a very high share of homeowners are on fixed rate mortgages.
“The biggest driver of house price falls is the extent to which people are forced to sell. That happens either if they lose their job or if the cost of their mortgage is too big to keep going,” says Mr Goodwin.
Ten years of ultra-low interest rates following the financial crisis brought a sea change in the structure of the British mortgage market that is now limiting the speed of price falls.
However, while the slump will be prolonged, Oxford Economics forecasts prices will only drop by 12pc peak-to-trough, compared to the 18pc crash recorded from 2008 to 2009.
About 7.4pc of mortgage holders will be looking for new deals in the first three months of the year, with a steady flow for the rest of the year.
Simon Rubinsohn, of the Royal Institution of Chartered Surveyors, says interest rates are unlikely to return to the rock bottom levels enjoyed in the post-financial crisis era.
Even after the Bank starts to cut the Bank Rate, it will settle at around 3pc, he believes.”
Will be interesting to see what impairment provisions Lloyds make later in
Sign In
Follow the stocks
