Santander UK says that it expects house prices to fall 10% this year, sliding back to 2021 levels.  

The high street bank says UK consumers face a difficult year ahead, with inflation and interest rates touching 40-year highs, at 10.1% and 4.25%, respectively. 

It says: “The economic outlook for 2023 remains uncertain. Inflation is forecast to be above the 2% target rate for 2023 putting further pressure on real disposable income.   

“We expect house prices to decrease by 10% in 2023, falling back to 2021 levels.” 

The bank’s comments come as it posts first-quarter pre-tax profits up 11% to £547m, largely due to the impact of higher base rate charges, rising net interest income and banking net interest margin – the difference between what it pays out to savers and what it charges lenders. 

However, its mortgage balances fell 2.2% to £183m in the three months to the end of March compared to the previous quarter, as home loan applications across the market have slumped 37% year-on-year, according to Bank of England data.

The high street lender adds that the “mortgage market trends we saw at the end of 2022 have continued into 2023”. 

Santander UK chief executive Mike Regnier says: “Following rises in the base rate, we have seen the most competitive ISA period for several years and a further slowdown in the mortgage market.”  

He adds: “The economic outlook for 2023 remains uncertain with inflation predicted to remain above the 2% target meaning many households and businesses will continue to face difficult decisions in the months ahead.”