The housing market is likely to “remain depressed” towards the end of the year, says Bloomberg Intelligence, reinforcing its forecast of a 5% fall in house prices across 2023. 

Lower home completions flagged by such housebuilders as Barratt and Taylor Wimpey in recent weeks, will hamper sales in the fourth quarter of this year and into 2024, says the news agency’s forecasting unit. 

But this must be balanced against slowing inflation and a softening labour market, which may curb Bank of England hikes and “support mortgage-rate cuts and contain market damage”. 

Bloomberg Intelligence real estate analyst Iwona Hovenko says: “Elevated mortgage rates may continue to pressure UK house prices in the fourth quarter, with moderate declines likely, possibly leading to a 5% fall in 2023, in line with Bloomberg Intelligence’s prior view.  

“We expect the slowdown to be more visible in subdued transactions, evident in weak leading indicators such as mortgage approvals, homebuilder’s orders, the Rics sentiment survey and property-portal data.” 

Mortgage approvals plunged almost 10% in July as affordability challenges continue for potential house buyers, according to the latest BoE Money & Credit data. 

It reported that net mortgage approvals fell to 49,400 in July from 54,600 in June, while approvals for remortgaging slightly increased from 39,100 to 39,300 over the same period. 

However, Hovenko points out that market expectations on the peak of the BoE base rate have slipped to around 5.5%, from 6.4% in early July, which “may limit the damage to the UK housing market from high interest rates”. 

This comes as the BoE battles inflation, which fell to 6.8% in the year to July from 7.9% in June, but still remains almost three-and-a-half times higher than its 2% target.    

Hovenko says: “Once inflation starts easing more markedly, mortgage-rate declines could resume before any central bank cuts, offering respite to the residential-property segment.  

“Tentative signs of abating price strain and a softening labour market – the unemployment rate climbed to 4.3% in July from the August 2022 low of 3.5%, even as wage growth remained at 7.8% – might support some pullback in rate views, driving mortgage rates lower.  

“That may, however, require several months of consistently slowing inflation and wage pressure.” 

He adds: “The UK housing outlook is still negative for transactions and house prices in the fourth quarter – given mortgage rates remain firmly above 5% across all loan-to-value ratios – but any easing of rates could help avoid the most severe scenarios.”