Lloyds’ base economic prediction sees house prices fall by 8% in 2023, a 17% in a ‘severe’ scenario


Banking giant Lloyds forecasts that house prices may fall by 8% next year – but says they could tumble nearly 18% in a ‘severe’ scenario

  • Bank’s report includes predications on house prices in 2023
  • Even the bank’s best case scenario sees prices falling by 2.7% next year
  • Capital Economics has forecast a 12% fall while Credit Suisse predicts 15% 
  • House prices continued to rise over the summer despite surging interest rates

House prices are expected to drop at 8 per cent next year but could fall by as much as 17.9 per cent, according to Lloyds Bank.

In its third quarter update the lender laid out its expectations for house prices under different economic scenarios. The best case or ‘upside’ scenario sees prices fall by just 2.7 per cent, compared to the ‘base case’ of 7.9 per cent and ‘severe downside’ of 17.9 per cent.

The base scenario, which represents what the mortgage lender thinks is most likely to happen, would take house prices back to around where they were in mid-2021. 

Lloyds Bank, the UK’s biggest mortgage lender, has said that house prices may fall 8% in 2023

‘Severe downside’ conditions would see house prices continue to drop until 2026, it said,  with an average decrease of 10 per cent a year.

For this worst case scenario to happen, inflation would need to rise to 14.3 per cent next year. It is currently at 10.1 per cent. 

In a ‘downside’ situation prices would fall by 12.9 per cent next year and also continue to drop until 2026 with an average price deflation of 5.5 per cent over the period.

Lloyds, which is Britain’s biggest mortgage lender, posted a pre-tax profit of £1.5billion for July to September, which is below the £1.8billion average analyst forecast provided by the bank and down 26 per cent from £2billion a year earlier.

The results were dented by a £668million provision set aside to cover potential bad loans in the future, which it said reflected the souring economic outlook.

Lloyds’ predictions are in line with other estimates from analysts and banks. House prices are set to fall 12 per cent by mid-2024, according to analysts at Capital Economics, whilst Credit Suisse expects prices to fall as much as 15 per cent.

Oxford Economics chief economist Andrew Goodwin says based on the cost of mortgages, house prices are overvalued by up to 37 per cent, and prices will likely fall by around 10 per cent year-on-year.

Return to mid-2021: House prices are set to fall by 7.9% next year according to Lloyds' base case scenario

Return to mid-2021: House prices are set to fall by 7.9% next year according to Lloyds’ base case scenario

Going down? Lloyds forecasting sees house prices falling until 2026 in half of its scenarios

Going down? Lloyds forecasting sees house prices falling until 2026 in half of its scenarios

‘Our new forecast will show a fall of 10 per cent in house prices year-on-year,’ he told This is Money. ‘About 13 per cent peak to trough over the next couple of years and compared to that mortgage affordability measure’.

Any fall in property prices will come after a period of soaring house price inflation. Despite the uncertain economic conditions house price inflation hit 13.6 per cent in August, according to the ONS, which predicts the average house price could reach £300,000 by the end of the year. 

Prices are being kept high by ongoing demand, although there are signs that activity is beginning to slow.

Housebuilder Barratt revealed in a trading update that average new home reservations were running at 181 per week, a third down on the 281 per week seen in its last full financial year.

Author Fred Harrison, who accurately predicted the last two house price slumps, is sticking to his 2026 house price crash prediction. 

Until that time, Harrison believes they will continue to rise, albeit not at the same pace of the past two years.

‘I am sticking with the 2026 end-of-house-price-rise cycle,’ Harrison told This is Money, ‘subject to Putin not launching a nuclear weapon – at which point, all bets are off.

‘There will be no crash, just a slowing of the rate of increase over the rates achieved during the Covid period.’

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic.

Banks and building societies are still lending and mortgages are still on offer with applications being accepted. 

Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates. 

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 

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