The warning comes just after Halifax reported the first annual fall in property prices since 2012.
With interest rates looking likely to keep rising and mortgage rates climbing, there are now debates over whether the housing market is likely to crash or whether the price falls will be more of a correction.
Graham Cox, founder at SelfEmployedMortgageHub.com, said: “A house price crash is now inevitable in my opinion. With further base rate rises expected, even Halifax is reporting that the ‘downward pressure’ on house prices is set to continue.
“I think we’ll see nominal house prices fall 15%-20% over the next two years, with property values starting to fall more rapidly over the second half of 2023.”
How employment will impact the property market
However, others explained for the property market to crash other factors would need to be in play, including high unemployment.
Karen Noye, mortgage expert at Quilter, said: “The real canary down the mine for how fast and severe house prices will drop will be unemployment rates.
“At present employment is still high and while unemployment rates have recently ticked up from very low levels it has held firm in the face of strong economic headwinds.
“If this was to change then we would see many more people unable to keep up with their bills causing more houses to come onto the market and prices to drop as a result.”
A drop in prices is something many have seen coming since the pandemic, when the stamp duty holiday created a demand for property and sent house prices soaring.
A correction is on the cards
Emma Jones, managing director at Whenthebanksaysno.co.uk, said a fall in prices was only to be expected. “This crash has been talked about and projected for some time and following the Stamp Duty holiday-triggered rise in prices during the pandemic, things were bound to come back down again,” she said.
“However, I believe we are more likely to see a correction in the market rather than a crash.”
Whether we see a correction or a crash, one benefit of house price falls is that it will improve affordability for first-time buyers.
But one thing’s for sure, there’s a rocky ride ahead for the property market. Noye said: “It appears likely that the UK housing market will continue to face challenges in the coming months.
“However, these effects may be somewhat mitigated if wage growth remains robust and unemployment stays low but with unexpectedly high [inflation] figures continuing to knock Britain’s recovery from the cost of living crisis off course it is anyone’s guess how things might pan out as we head into the summer and into autumn.”
Watch this space…
