UK house prices will not stop falling until 2025, Lloyds predicts - The Guardian

UK house prices will continue to slide this year and in 2024 and will not start to recover until 2025, Lloyds Banking Group has forecast.

The lender, which owns Halifax and is Britain’s largest mortgage provider, said that by the end of 2023 UK house prices will have fallen 5% over the course of the year and are likely to fall another 2.4% in 2024.

Those forecasts, which were released alongside its third-quarter financial results on Wednesday, suggest UK house prices will have dropped 11% from their peak last year, when the market was still being fuelled by a rush for larger homes in the wake of the coronavirus pandemic.

Santander is predicting a larger drop in UK house prices for the whole of 2023 of around 7%, followed by a smaller 2% fall in 2024.

Both lenders said the first signs of growth would start to emerge only in 2025, with Lloyds economists predicting a 2.3% increase in house prices that year and Santander expecting a 2% rise.

“The housing market in 2023 has been a little bit softer than we saw in previous years,” Lloyds’ chief financial officer, William Chalmers, said. “Having said that, as you know, there has been an increase generally in the housing market for a number of years to date, and so we’re retracing a part of those steps.”

It came as Lloyds warned that its own finances were being squeezed, as it started to pay out higher interest rates to its savers.

The high street lenders said its net interest margin, which is a key driver of bank income and accounts for the difference between what is charged for mortgages and paid on savings, dropped from 3.14% to 3.08% in the third quarter, covering the period from July to September. Lloyds said it was due to “expected mortgage and deposit pricing headwinds”. Chalmers said that decline was expected to continue into the next quarter.

It comes amid tough competition, which has forced lenders to start to reduce costly mortgage rates, while paying out more for deposits, as savers increasingly shop around for more lucrative returns.

It follows pressure from regulators and politicians, who earlier this year accused banks of failing to pass on interest rate rises to their savings customers at the same rate that they were increasing charges for borrowers.

However, Lloyds still managed to report a rise in pre-tax profits to £1.9bn for the three months to September. That is up from £576m a year earlier. However, that figure has been restated to align with new accounting rules.

Its profits were also flattered by a 72% drop in the amount of money put aside for potential defaults, to £187m. That compares with the £668m it put aside at this time last year, when it frontloaded its cash cushion amid fears of an economic downturn that could hit the UK housing market.

Lloyds said the number of customers falling behind on mortgage payments was “broadly stable” in the third quarter, and that the growth in defaults had also slowed, but were still slightly above pre-pandemic levels.

Santander also said it had seen a “modest increase” in customers falling further behind on mortgage payments, but that it expected higher-for-longer interest rates to have a “more pronounced impact on households and businesses” going forward.

Chalmers said Lloyds was proactively reaching out to customers to offer debt advice and shift some borrowers on to better rates. “It is a very extensive outreach programme that is adopted proactively by the bank to ensure that customers that need support get it,” he said.

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2023-10-25 08:52:00Z
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