UK house prices will continue to slide this year and in 2024 and will not start to recover until 2025, Lloyds Banking Group has forecast.
The lender, which owns Halifax and is Britain’s largest mortgage provider, said that by the end of 2023 UK house prices will have fallen 5% over the course of the year and are likely to fall another 2.4% in 2024.
Those forecasts, which were released alongside its third-quarter financial results on Wednesday, suggest UK house prices will have dropped 11% from their peak last year, when the market was still being fuelled by a rush for larger homes in the wake of the coronavirus pandemic.
Lloyds said the first signs of growth would only start to emerge in 2025, with its economists predicting a 2.3% increase in house prices that year.
“The housing market in 2023 has been a little bit softer than we saw in previous years,” Lloyds’ chief financial officer, William Chalmers, said. “Having said that, as you know, there has been an increase generally in the housing market for a number of years to date, and so we’re retracing a part of those steps.”
It came as the lender warned that its own finances were being squeezed, as it started to pay out higher interest rates to its savers.
The high street lenders said its net interest margin, which is a key driver of bank income and accounts for the difference between what is charged for mortgages and paid on savings, dropped from 3.14% to 3.08% in the third quarter. Lloyds said it was due to “expected mortgage and deposit pricing headwinds”.
Chalmers said: “We do expect that decline to continue going forward into quarter four.”
It comes amid tough competition, which has forced lenders to start to reduce costly mortgage rates, while paying out more for deposits, as savers increasingly shop around for more lucrative returns.
It follows pressure from regulators and politicians, who earlier this year accused banks of failing to pass on interest rate rises to their savings customers at the same rate that they were increasing charges for borrowers.
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However, Lloyds still managed to report a rise in pre-tax profits to £1.9bn for the three months to September. That is up from £576m a year earlier. However, that figure has been restated to align with new accounting rules
Its profits were also flattered by a 72% drop in the amount of money put aside for potential defaults, to £187m. That compares with the £668m it put aside at this time last year, when it frontloaded its cash cushion amid fears of an economic downturn that could hit the UK housing market.
The bank’s chief executive, Charlie Nunn, said: “The group continues to perform well. Robust financial performance and strong capital generation in the first nine months of the year was driven by net income growth, cost discipline and resilient asset quality. This performance allows us to reaffirm our 2023 guidance.”
