New forecasts indicate that the worst house price declines in the UK will occur in 2024, coinciding with the stabilization of values in other countries. Moody’s warns that the decline in house prices in the UK will be much steeper over the next two years compared to advanced economies like Germany, France, and the US.
This credit ratings agency attributes these steep declines to a combination of higher inflation, the significant growth in house prices during the pandemic property boom, and the high proportion of borrowers on short-term fixed-rate mortgages in the UK. These factors leave the UK particularly vulnerable to a prolonged housing downturn.
Moody’s predicts that the Bank of England, facing the task of reducing stubbornly high inflation, will maintain a tight monetary policy stance through 2024. Consequently, the impact of interest rates on housing demand in the UK is expected to be severe and prolonged.
The forecast indicates that UK house prices will decline by 4% in 2023 and a further 6% in 2024. This performance will be the worst among the nine Western countries monitored by Moody’s, including the US and the largest European economies.
In comparison, Germany is expected to experience a larger house price drop of 5.7% this year. However, the decline in Germany will be more short-lived, with only a 1.6% decrease projected for 2024.
The US is forecasted to have nominal house price growth of 0.2% in 2023 and a decline of 3.8% in 2024.
While early indications suggest that UK mortgage rates are stabilizing after two months of rapid growth, analysts do not anticipate significant drops in the near future.
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