According to latest predictions from Knight Frank, house prices will then begin to rise, going up by two per cent in 2024 and four per cent in 2026.
Overall, this means that over five years house prices will go up by 1.5 per cent.
However, house prices in the capital are expected to decrease by six per cent next year and then by four per cent in 2024.
They will then rebound by three per cent in 2025 and five per cent in 2026. Over the next five years, this means house prices in London are expected to go up by 0.5 per cent.
The report said that the reasons behind the fall were spiralling energy costs, pushing inflation forecasts and interest rate expectations higher
It added that it had revised its forecasts as fallout from the mini Budget had pushed up swap rates and the base rate.
Prices spikes since the pandemic
The report continued that prices have grown by around 23 per cent since Covid due to low supply and high demand, adding that it expected the growth in the second half of the pandemic to be “reversed”.
“As supply and demand continue to normalise, the dominant theme of the next two years will be tighter budgets due to higher monthly interest bills,” it added.
Knight Frank said that four million first-time buyer mortgages had been issued since the “era of ultra-low rates” began in 2009, which showed many borrowers may not be accustomed to “monthly repayments rising meaningfully”.
It added that it believed “higher borrowing costs will reverberate up through the housing market” and felt especially in the prime Central London market.
However, buyers and sellers in London will be more “insulated from rising rates” due to higher levels of affluence and housing equity as well international buyers.
Accidental landlords may return to lettings market
Knight Frank forecasted four per cent rental value growth in the UK in 2023, and again in 2024. This then falls to three per cent in 2025 and 2026.
In Greater London, rental value growth is pegged at five per cent in 2023 and then three per cent every year between 2024 and 2026.
Five-year cumulative growth for the UK is 20.5 per cent, and for Greater London this is 22.8 per cent.
Knight Frank explained: “While new landlords may be proceeding with caution due to higher mortgage costs, we believe more accidental landlords may return to the lettings market as the sales market cools down.
“These are property owners who decide to let out their property after failing to sell for the asking price.”
