British house prices look on track to fall around 15 per cent by mid-2024, economists from Japanese bank Nomura said on Thursday, a more severe drop than other forecasters have projected.
The market is already showing signs of a reversal, after the COVID-19 pandemic and tax breaks spurred a 29 per cent surge in house prices on the official measure.
Mortgage approvals have fallen sharply in recent months as interest rates hit new 15-year highs.
Nomura said house prices are likely to need to fall by between 10 per cent and 20 per cent from the peak they reached last year for the ratio between higher monthly interest payments and squeezed incomes to return to normal levels.
"We have thus settled on a central forecast of a 15 per cent fall by mid-2024, which while in the middle of the above range would be a larger fall than assumed by the Bank of England, Office for Budget Responsibility and consensus," Nomura economists George Buckley, Andrzej Szczepaniak and George Moran said in a research note.
Mortgage lenders estimate British house prices are already 3.5 per cent lower than their peak, Nomura said. Official data, which covers the period up to October, has not yet shown a fall.
House prices in most major property markets will fall in 2023, according to nearly 100 housing market analysts polled last month by Reuters. British house prices were forecast to fall 4.7 per cent in 2023, and drop by 10 per cent from peak to trough.
Nomura said slumping house prices would feed through into the Bank of England's monetary policy.
"A weaker housing market, and economy to boot, should provide justification for the Bank to end its tightening cycle soon... and begin easing policy in 2024," the economists said.
Nomura expects the BoE's Bank Rate to peak at 4.25 per cent this year, up from 3.5 per cent now, before falling to around 3.5 per cent midway through next year. - Reuters