Lloyds Bank predicts a continuous decline in house prices extending past the upcoming general election, attributing this trend to prolonged higher interest rates.
The leading mortgage lender in the UK anticipates a 4.7% decrease in house prices for the current year and a further 2.4% drop in 2024, with the market not expected to rebound until 2025 when a 2.3% increase is forecasted.
This situation positions the Government in a challenging spot, entering the general election campaign amidst an expected 11% overall decrease in house prices from peak to trough, according to Lloyds’ projections.
Simultaneously, the bank foresees a surge in unemployment rates, rising from the current 4.2% to 4.9% in the following year, and peaking at 5.1% in 2025.
The grim outlook presented only complicates matters further for the Conservative Party, which is already navigating through challenging times with the Government overseeing an unprecedented peacetime tax burden, and facing a substantial lag behind Labour in the polls.
Lloyds Bank, along with its subsidiary Halifax, disclosed updated forecasts as a segment of its third-quarter financial report on Wednesday, revealing a pre-tax profit surge to £1.9 billion. This marks a 15% increase compared to the preceding three months and is over three times the profit earned in the equivalent quarter of the previous year.
Benefiting substantially from elevated interest rates, the bank’s pre-tax profits for 2023 have amassed to £5.7 billion thus far.
Lloyds had initially projected interest rates to hit 5.5%. However, William Chalmers, the bank’s Chief Financial Officer, has adjusted this expectation, now believing that the Bank of England’s base rate has reached its zenith at 5.25%.
While he anticipates this will alleviate some pressure for mortgage borrowers, Chalmers cautioned that interest rates are anticipated to persist at elevated levels for an extended period.
Mr. Chalmers commented, “This year, we’ve observed a somewhat gentler housing market compared to the preceding years.
“Nonetheless, it’s crucial to highlight that the housing market has been on an upward trajectory for several consecutive years up to this point.
“What we are witnessing now is a slight retracement of those gains. When you consider the period since before the pandemic, the housing market has actually seen an overall increase.”
A main competitor, Santander, disclosed that it has reduced its mortgage lending by £10.1 billion this year, attributing this decision to elevated funding expenses.
The bank is experiencing a rise in mortgage arrears: 0.74% of its loan portfolio is now overdue by 90 days or more, which is an increase from 0.62% the previous year.
Santander reported that, on average, the mortgages it has approved this year are valued at £227,000, which represents a decrease from £237,000 during the same timeframe in 2022.
Ashley Webb of Capital Economics highlighted the sluggish housing market as a major factor contributing to the economic downturn, stating, “This is one of the key indicators leading us to believe that the economy is on the brink of, or perhaps already in, a mild recession.”
He cautioned that the deceleration in the property market would have a substantial impact on the economy, “directly affecting residential investments and consumer expenditure, and indirectly through a diminished wealth effect that would curtail consumer spending.”
Despite these challenging conditions, Lloyds maintains an optimistic outlook, projecting a 0.4% growth in GDP for this year, which is double their initial prediction of 0.2%. They anticipate this growth to quicken to 0.5% in the following year and reach 1% by 2025, revising earlier forecasts of 0.3% and 0.7% growth, respectively.
Mr. Chalmers expressed that the economy has fared better than anticipated, providing the impetus for the upgraded growth projections.
