LONDON: British house prices look on track to fall around 15% by mid-2024, economists from Japanese bank Nomura said on Thursday, a more severe drop than other forecasters have projected.

The market is already showing signs of a reversal, after the COVID-19 pandemic and tax breaks spurred a 29% surge in house prices on the official measure.

Mortgage approvals have fallen sharply in recent months as interest rates hit new 15-year highs.

Nomura said house prices are likely to need to fall by between 10% and 20% from the peak they reached last year for the ratio between higher monthly interest payments and squeezed incomes to return to normal levels.

“We have thus settled on a central forecast of a 15% fall by mid-2024, which while in the middle of the above range would be a larger fall than assumed by the Bank of England, Office for Budget Responsibility and consensus,” Nomura economists George Buckley, Andrzej Szczepaniak and George Moran said in a research note.

Biggest UK house price fall recorded since financial crisis

Mortgage lenders estimate British house prices are already 3.5% lower than their peak, Nomura said. Official data, which covers the period up to October, has not yet shown a fall.

House prices in most major property markets will fall in 2023, according to nearly 100 housing market analysts polled last month by Reuters. British house prices were forecast to fall 4.7% in 2023, and drop by 10% from peak to trough.

Nomura said slumping house prices would feed through into the Bank of England’s monetary policy.

“A weaker housing market, and economy to boot, should provide justification for the Bank to end its tightening cycle soon… and begin easing policy in 2024,” the economists said.

Nomura expects the BoE’s Bank Rate to peak at 4.25% this year, up from 3.5% now, before falling to around 3.5% midway through next year.