What will happen to house prices next?

While the market has remained largely steady in recent months, there has been a slight drop

What will happen to house prices next?

While the market is yet to see a real comedown in house prices, the latest Nationwide house price index data shows annual house price growth slowed to 9.5% in September, the first single digit increase figure seen since October last year.

Karen Noye (pictured), mortgage expert at Quilter, outlined that this slight dip is likely to rise further over the coming months as the cost-of-living crisis takes an even firmer hold.

“Interest rates are set to soar in the near future, with many predicting the Bank of England base rate at near 6% next year,” Noye said.

Alongside rapidly increasing energy bills and other everyday costs, many people may find their mortgages become unaffordable.

“When the markets are volatile, it can often be best to sit tight and wait,” Noye added. “However, whether people can afford the luxury of waiting for the markets to settle and prices to rebound is becoming increasingly unlikely.”

Oversupply of housing could fuel downturn

Noye believes there will be an increase in borrowers finding themselves in a position where they are forced to sell their home because of spiralling mortgage and living costs, which could lead to more houses coming on to the market. If the latter happens all at once, Noye outlined that property prices may slump as a result, and added that predictions of a drop in house prices of anywhere between 10% and 30% have been tabled in a worst-case scenario.

Read more: Will there be a rise in the number of forced sales and repossessions?

This is likely to be enhanced by higher interest rates and living costs, putting off prospective buyers and therefore resulting in a downturn in prices.

“Having said that, while interest rates will rise in an attempt to tame inflation, the recently announced stamp duty cut may help to keep the housing market motoring for a period by enticing buyers to take advantage of the newly available tax savings,” she added.

Read more: Stamp duty cut – how does it compare to the stamp duty holiday?

“Should house prices fall, for those on the property market with a good level of equity, the impact will be much smaller,” Noye said. “Likewise, for people who want to move home, if you are selling your home for less due to a fall in house prices then the home you are looking to buy will likely be reduced in comparison to today’s prices too.”

If house prices were to fall as much as some have predicted, Noye believes there could an increase in the number of borrowers who will fall into negative equity, which she noted would leave them with very limited options.

“For-first time buyers, however, a drop in house prices to pre-COVID levels would be a welcomed impact given they will likely have been struggling to get on the housing ladder in recent times due to the increased house prices and large deposits required,” Noye said.

“Ultimately, everyone’s financial situation is unique, and it is therefore key to seek professional financial advice before making an important decision such as whether to move home or buy your first house.”