A drop in house prices over the next two years is set to wipe out this year’s rise, with growth not returning to the market until 2025, according to Fine & Country MD Nicky Stevenson.

However, while she acknowledges there will be challenges ahead, Stevenson pointed out that forecasts for the housing market are “less dramatic” than in the early 1990s and the global financial crisis.

“The expected 9% increase in house prices seen this year is likely to be countered by a fall over the course of 2023-24, with price growth set to resume in 2025,” she said. “In the short term, the economy is likely to shrink by 1.4% in 2023 but is expected to grow by a cumulative 9% by the end of 2027. Inflation is expected to peak by the end of 2022 before falling back to 3.4% over the course of 2024.”

According to Stevenson, swap rates have returned to levels lower than in the immediate aftermath of Kwasi Kwarteng’s disastrous “growth plan” mini budget earlier this year, but consensus mortgage rates of between 5% and 6% are set to be the norm. “The base rate of interest is expected to peak in 2023 at just over 4%; however, house price rises in recent years will reduce the loan-to-value of mortgages for some looking to remortgage,” she said. “The Bank of England reported a sharp drop in mortgage approvals in October; whether this was a knee jerk reaction to the growth plan or a longer-term trend remains to be seen.”

Stevenson also pointed out that, with the exception of 2021, sales in 2022 are expected to be the strongest in five years. With buyer demand returning to levels more in tune with those seen pre-pandemic, so too will sales volumes in 2023, she insisted. “With nearly one in three property purchases ‘needs-based’ due to changing personal circumstances, the market will not grind to a halt, but pricing for market conditions will be paramount as the market swings back in the favour of buyers,” she said.