Michelle ThompsonThe UK’s largest mortgage lender anticipates a decrease in house prices for the current year and the following year, with an expectation of a rebound in 2025.
Lloyds Banking Group, the owner of Halifax, predicts a 4.7% decrease in house prices for this year, followed by a further 2.4% decline in 2024, before an expected recovery. These price drops have been attributed to higher borrowing costs, which have contributed to a slowdown in house sales.
However, it’s worth noting that the average house price remains approximately £40,000 higher than the peak of the COVID-19 pandemic, a time when remote work prompted a demand for more spacious homes.
Lloyds suggests that although prices are expected to decrease in the short term, there will be steady long-term growth, with prices projected to rise by 0.6% by 2027.
The current interest rates, standing at 5.25%, are the highest in 15 years, driven by efforts to combat rising consumer prices through a series of rate hikes. As a result, lenders have increased their borrowing rates, including those for mortgages. Data indicates that the average rate for a two-year fixed mortgage is currently 6.24% on average, according to financial information service Moneyfacts.
Lloyds’ housing market projections are based on the Halifax House Price Index, which excludes data for cash buyers, representing more than 30% of housing sales.
Despite reports from mortgage lenders of declining house prices, the average property price in the UK remains relatively high. According to the UK House Price Index, the average property price based on completed transactions in August this year was £291,044, showing little change compared to the previous year.
Lloyds, which also owns Halifax and Bank of Scotland, released its housing price forecast alongside its trading statement, which revealed substantial profits, as the bank continues to benefit from higher interest rates.
For the three months ending in September, the banking group reported a pre-tax profit of £1.9 billion, a significant increase from the £576 million recorded in the same period the previous year.
Most banks have seen increased profits due to rising interest rates, resulting in customers paying more for mortgages, loans, and credit cards.
There has been concern that banks are raising borrowing rates more rapidly than savings rates, particularly for easy access accounts. Currently, the average easy access savings rate, which is the most common in the market, stands at 3.21%.
However, banks like Lloyds have defended their actions against such criticism. Charlie Nunn, the group chief executive at Lloyds, stated that the bank remains focused on supporting its customers and helping them navigate the uncertain economic climate.
The bank also noted a trend of more customers transferring funds from current accounts to savings accounts.
‘Padding their Financial Reserves’
Matt Britzman, an equity analyst at Hargreaves Lansdown, mentioned that Lloyd’s strong performance was due to its ability to “retain savers seeking better interest rates.”
However, Fran Boait, co-executive director of the campaign group Positive Money, criticized banks for “boosting their profits” while regular individuals grapple with increasing interest rates that push them into poverty.
Barclays recently reported pre-tax profits of £1.89 billion for the three months ending in September, a slight decrease from the £1.96 billion in the same period in 2022, prompting them to revise their profit forecasts downward.
In the same period, Santander announced pre-tax profits of £1.73 billion in the UK for the nine months leading to September, primarily driven by higher interest rates.
Mike Regnier, the UK chief executive of the Spanish-owned Santander, emphasized the bank’s focus on customer needs and its commitment to offering competitive rates for savers.
Santander’s decision to discontinue an easy access account with a 5.2% interest rate last month was due to “significant demand,” and it was marketed as a “limited edition” product.
In July, the financial watchdog issued a warning that banks would face “strong measures” for providing unreasonably low savings rates to customers at a time when borrowing rates were increasing significantly.
Under new regulations introduced by the Financial Conduct Authority (FCA), banks must now demonstrate that they are providing fair value to their customers. Last month, the regulator revealed that it was investigating the savings offerings of nine different companies.
