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Biggest Base Rate Rise in 30 Years to Slow Demand But Prices to Keep Rising

Cebr has increased its forecast for annual house price growth in 2022 from 6.9% to 8.7%, on the back of signs of resilience in the market through Q2 and expectations that an upcoming slowdown will intensify slightly later in the year than previously anticipated.

Cebr says that annual UK house price growth stood at 10.9% on average across Q2, up from 9.8% in Q1. However, annual house price growth is set to slow considerably over the coming months, amid significant headwinds facing the UK economy. Indeed, there are already signals of a slowdown in demand and prices, which the latest hike in interest rates is set to compound.

Year-on-year growth is expected to average 4.2% across Q4, before falling to -2.0% in Q1 2023. Subsequently, a peak average annual contraction of 5.6% is expected in Q3 2023, the firm says.
Across 2023, Cebr expects UK house prices to fall by an average of 4.0%. The firm reported: ‘This represents a downgrade from our previous forecast of 3.7%. A return to annual house price growth, at 1.3%, is forecast for 2024. This is up from our previous forecast of 0.5%, although remains relatively weak by recent historical comparison.’

The last Bank of England’s Monetary Policy Committee (MPC) meeting saw the sharpest interest rate hike in 27 years. The 50-basis point rise brought the base rate to 1.75%, its highest levels since December 2008. Cebr expects further base rate hikes over the remaining three 2022 MPC meetings, with a total further rise of 125 basis points expected, taking the base rate to 3.0% by the end of this year.

Data from the BoE show a continuation of the upward trend in mortgage rates in June, with the average new 75% loan-to-value (LTV) mortgage rates at both a two-year and five-year fix standing at 2.9% in May, up from 2.6% in April. This brought the average new two-year fixed rate to a high not seen since March 2013, and the five-year fix to August 2015 levels.

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