Too soon to call an end to the house price correction

The UK’s house price correction has been mild so far and recent data has indicated the market may be more resilient than we had thought. But we still think the downturn has some way to run.

What you will learn:

• Though mortgage rates have dropped back in recent months and wage growth has been very strong, we estimate that house prices are still more than 20% overvalued based on the affordability of mortgage payments. This is likely to mean that transactions remain very low.
• Meanwhile, the consequences of tighter monetary policy continue to emerge. Mortgage arrears have reached a seven-year high. A further 1.5mn mortgagors are due to refinance at much higher rates before the end of 2024, so the number of borrowers experiencing financial stress is likely to rise. The average mortgage has increased sharply relative to incomes, which could exacerbate the problem.
• We expect house prices to fall by just under 9% from peak-to-trough, which would be just over half the drop seen in the global financial crisis. Our less downbeat view of this cycle is due to the much lower unemployment rate and slow rise in average mortgage rates.