Lloyds predicts a decline in UK house prices until 2025.

26 Oct, 2023

Lloyds predicts a decline in UK house prices until 2025.

Lloyds Banking Group, the owner of Halifax, expects a temporary dip in UK house prices over the next two years before a gradual recovery. The bank forecasts a 4.7% decline in house prices in 2023 and a further 2.4% decrease in 2024. This downturn is attributed to higher borrowing costs that have resulted in a slowdown in housing sales.

Despite these anticipated declines, the average house price in the UK remains significantly higher, with an approximate £40,000 increase compared to the peak of the COVID-19 pandemic. The demand for larger spaces as people work from home has been a contributing factor.

Lloyds emphasized that while prices might fall in the short term, long-term growth is anticipated, with prices expected to rise by 0.6% by 2027.

Interest rates are currently at 5.25%, the highest level in 15 years, driven by a series of rate hikes aimed at curbing rising consumer prices. Consequently, lenders have raised their borrowing rates, including mortgage rates. The average rate for a two-year fixed mortgage is currently 6.24% on average, according to Moneyfacts.

Lloyds' house price projections are based on the Halifax House Price Index, which excludes cash buyers, accounting for over 30% of housing sales.

While data from mortgage lenders indicates decreases in house prices, the average property price in the UK remains notably high. According to the UK House Price Index, the average property price based on completed transactions in August this year was £291,044, a figure similar to the previous year.

Lloyds, which also owns Halifax and Bank of Scotland, disclosed its house price forecast alongside a trading statement, revealing substantial profits as a result of the increased interest rates.

The banking group reported a pre-tax profit of £1.9 billion for the third quarter, a notable increase from £576 million during the same period the previous year. Rising interest rates have led to higher profits for most banks, as customers pay more for borrowing money for mortgages, loans, and credit cards.

However, there have been concerns that banks are raising borrowing rates more rapidly than savings rates, particularly for easy-access savings accounts. The average easy-access savings rate, the most common in the market, currently stands at 3.21%.

Despite criticism, banks, including Lloyds, have defended their practices. Charlie Nunn, group chief executive at Lloyds, stated that the bank remains "focused on supporting our customers and helping them navigate the uncertain economic environment."

The bank reported an increase in customers transferring money from current accounts into savings accounts.