House prices are to drop further than expected this year despite falling mortgage rates.
Estate agency Knight Frank said it expects prices to slump by 7pc this year – more than its March estimate of 5pc.
It attributed part of the projected fall in its latest forecasts to volatility caused by last September’s mini-Budget.
The warning comes despite encouraging signs that the mortgage crisis could be easing as rates start to come down. HSBC, Santander and NatWest were among the lenders that cut borrowing costs this week after the Bank of England decided not to increase interest rates.
The average five-year deal has slipped below 6pc for the first time since July, according to financial data analyst Moneyfacts.
Tom Bill of Knight Frank said “some stability appears to be on the horizon” because of the Bank of England’s decision to hold rates at 5.25pc.
House prices will nevertheless fall further than expected this year due to volatility caused by last September’s mini-Budget and inconsistent inflation data, he added.
Government figures published on Friday point to a housing slump, with net mortgage approvals at their lowest for six months in August, falling from 49,500 to 45,400 month-on-month.
Riz Malik of broker R3 Mortgages said: “Mortgage rates may be coming down, but consumer sentiment has been hit with a sledgehammer.”
Knight Frank’s outlook for 2024 now looks slightly more optimistic, amid speculation that interest rates may have hit their peak. Next year it expects prices to fall by 4pc – less than its earlier estimate of 5pc.
Mr Bill said: “The number of people moving from lower fixed-rate mortgages will not fall in 2024, but the backdrop will not be such an unpredictable flow of economic data and 14 consecutive rate rises.”
Karen Noye of investment firm Quilter said: “We should hopefully see a break in the wait-and-watch attitude among buyers for either a rollback in house prices or a further abatement in mortgage rates now that rates are slipping and sellers are trimming asking prices.”