Lloyds economic core forecast house prices to drop 8% in 2023, down 17% in an ‘extreme’ scenario

Banking giant Lloyds predicts house prices could drop 8% next year – but says they could drop nearly 18% in an “extreme” scenario

  • The bank’s report includes forecasts for home prices in 2023
  • Even the bank’s best-case scenario sees rates falling 2.7% next year
  • Capital Economics expected a decline of 12% while Credit Suisse expected 15%.
  • Home prices continued to rise over the summer despite higher interest rates

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

In its third-quarter update, the lender made its projections for home prices under different economic scenarios. The best-case or “upside” scenario sees prices drop by just 2.7 percent, compared to the “base case” of 7.9 percent and the “sharp drop” of 17.9 percent.

The base scenario, which represents what the mortgage lender thinks is likely to happen, would return home prices to where they were in mid-2021.

Lloyds Bank, the UK's largest mortgage lender, said house prices could fall 8% in 2023.

Lloyds Bank, the UK’s largest mortgage lender, said house prices could fall 8% in 2023.

She said “hard landing” conditions would see house prices continue to fall through 2026, with an average decline of 10 per cent annually.

For this worst-case scenario to happen, inflation would need to rise to 14.3 percent next year. It is currently 10.1 percent.

In a “downtrend” condition, prices will fall by 12.9 percent next year and will also continue to fall through 2026 with an average price contraction of 5.5 percent over the period.

Lloyds, Britain’s largest mortgage lender, reported pre-tax profit of £1.5 billion in the July-September period, below the average analyst forecast of £1.8 billion given by the bank and by 26 per cent. 2 billion pounds in the previous year.

The results were dented by a £668m provision to cover potential bad loans in the future, which it said reflected the deteriorating economic outlook.

Lloyd’s forecasts are in line with other estimates from analysts and banks. House prices are set to fall 12 percent by mid-2024, according to analysts at Capital Economics, while Credit Suisse expects prices to fall by up to 15 percent.

Andrew Goodwin, chief economist at Oxford Economics, says that based on the cost of mortgages, homes are overvalued by up to 37 per cent, and prices are likely to fall by around 10 per cent year-on-year.

Back to mid-2021: House prices set to fall 7.9% next year under Lloyds base case scenario

Back to mid-2021: House prices set to fall 7.9% next year under Lloyds base case scenario

Going down?  Lloyd's predicted that house prices would fall through 2026 in half of its scenarios

Going down? Lloyd’s predicted that house prices would fall through 2026 in half of its scenarios

“Our new projections will show a 10 percent drop in house prices year on year,” he said. “About 13 percent peak-to-trough over the next two years and compared to a measure of mortgage affordability.”

Any decline in real estate prices will come after a period of high housing price inflation. Despite the uncertain economic conditions, house price inflation was 13.6 per cent in August, according to the Office for National Statistics, which expects the average house price to reach £300,000 by the end of the year.

Prices are being kept high due to continued demand, although there are signs that activity is starting to slow.

Housebuilder Barratt revealed in a trade update that new home bookings were averaging 181 per week, a third down from the 281 per week seen in the last full fiscal year.

Author Fred Harrison, who accurately predicted the latest house price crash, sticks to his 2026 house price crash predictions.

Until then, Harrison believes they will continue to rise, though not at the same pace as in the past two years.

“I am committed to the cycle of rising house prices at the end of 2026,” Harrison said, on the condition that Putin does not launch a nuclear weapon — at which point all bets are off.

There will be no collapse, only a slowdown in 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 existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..

Banks and building societies are still lending and mortgages are still being accepted with applications accepted.

However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.

This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.

What if I need to re-travel?

Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.

Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.

Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I’m buying a house?

Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.

Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.

How to compare mortgage costs

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

You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.

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

> Check out the best fixed rate mortgages you can apply for


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