Lloyds improves forecast for 2023 house price falls

UK mortgage lender Lloyds has reined in its expectations for house price falls this year in the wake of the stabilising mortgage market.

However, the owner of the Halifax said yesterday that it still expects average prices to fall by nearly 7% this year.

Last autumn in the wake of former chancellor Kwasi Kwarteng’s mini budget Lloyds said it expected prices to fall by nearly 9% this year and by 2.3% in 2024 given likely rises in inflation and unemployment.

Publishing annual results for the 2022 calendar year yesterday, the bank produced updated forecasts, and while it made clear that the “macroeconomic outlook remains uncertain”, it said the forecasts had been “revised in light of […] reversals in UK fiscal policy”, which reduced the extent of price falls now expected.

It said its “base case” was now that prices will fall 6.9% this year and sink a further 1.2% in 2024, before starting to recover slowly from 2025.

This forecast assumes that the war in Ukraine doesn’t expand to involve neighbouring countries, NATO or China; that UK labour market participation remains constrained; and that the Bank of England continues to allow above-target inflation in the medium term, preferring this to the economic costs arising from a rapid forcing down of inflation.

However, it warned that in a “downside” scenario, where some of these economic or political risks play out, it was possible prices could fall by as much as 11% next year, and continue falling for the next three years, dropping by as much as a quarter overall by 2026.

The modest upward revision to Lloyds’ house price forecast comes after a series of housebuilders have claimed to have seen encouraging signs of buyer activity on sites since the New Year, with some commentators suggesting market data so far is not indicating as severe a downturn for 2023 as had been feared in the immediate aftermath of the mini-budget.

Online property portal Rightmove claimed that its figures for house prices in February were “better than expected” after average asking prices remained flat in the month, halting the declines of recent months, with buyer interest higher than in 2019. However, the firm also admitted it was the first time it had ever failed to record a house price increase in the month of February.