The UK Housing Market Faces a Downturn: Moody’s Predicts a 10% Fall in House Prices Over the Next Two Years
Moody’s Investor Service, a renowned credit ratings agency, has recently warned that the housing market in Britain is expected to experience a significant downturn. According to their report, house prices are likely to decline by 10% over the next two years, with the potential for even more severe consequences if a deeper correction occurs. This article examines the factors contributing to this projected decline and explores the potential implications for the wider economy.
Inflation and Lending Rates:
One of the primary drivers of this anticipated correction in the housing market is the persistently high inflation in the UK. Recent inflation data revealed a surprising increase, prompting investors to expect further rises in borrowing costs from the Bank of England. Consequently, market interest rates soared, leading mortgage lenders to raise their rates in response. Compared to the rates of less than 3% seen just a year ago, interest rates for two-year mortgage deals are now significantly higher, exceeding 5%.
Moody’s Perspective:
Moody’s Investor Service believes that if house prices were to decline by a more substantial margin of around 21%, the implications for the economy would be far-reaching. Their report warns that such a scenario could plunge the UK into a recession starting in the second half of 2023, lasting for six quarters. The report also predicts that unemployment would reach 6% by the end of 2024, although still below the peak witnessed during the global financial crisis.
Previous Market Trends:
The housing market in the UK experienced a brief recovery earlier this year, following a weakening period in late 2022 caused by a surge in mortgage rates, which was attributed to the economic agenda of former Prime Minister Liz Truss. However, economists have anticipated a decline in house prices throughout this year as the Bank of England’s rate increases gradually impact mortgage costs. Both Halifax and Nationwide, two prominent lenders, reported year-on-year declines in their house price indexes for the first time since 2012.
Experts’ Projections:
A recent Reuters poll conducted among economists and property analysts corroborated the notion of a forthcoming downturn in the UK housing market. The poll suggested that house prices are likely to fall by approximately 3% in the current year, with expectations of a flatlining market in 2024.
Implications for the Economy:
The potential decline in the housing market could have wide-ranging implications for the broader economy. A substantial correction in house prices may not only dampen consumer confidence and spending but also affect related industries, such as construction and home improvement. Additionally, a prolonged recession, as predicted by Moody’s, would undoubtedly impact employment rates and contribute to increased levels of unemployment.
As Moody’s Investor Service highlights the potential for a 10% decline in house prices over the next two years, concerns arise about the consequences of a more severe downturn in the UK housing market. The intersection of high inflation, rising interest rates, and increased borrowing costs has set the stage for this correction. While economists and property analysts generally anticipate a decline in house prices, the extent of the impact on the broader economy remains to be seen. As the market evolves, policymakers and industry stakeholders will closely monitor these developments and take necessary steps to mitigate any potential adverse effects on the economy and the housing sector.