Banks are preparing for house prices to fall by a third

House prices falling by a third, interest rates soaring to 6%, inflation surging to 17%, and the economy going into deep recession – these are among the key elements of the latest Stress Test announced by the Bank of England yesterday.

The UK’s largest banks are set to face a test by the Bank of England that will prove whether they can weather an economic crisis that involves UK inflation soaring and property values plummeting.

The new stress test scenario is part of an annual exercise that is meant to weed out potential weaknesses in the banking system that could put the country’s financial system at risk.

Any lenders that fall short could be forced to raise billions of pounds in capital to strengthen their finances.

Yesterday, the Bank of England confirmed that this year’s scenario would include:

  • UK GDP falling by 5% over 12 months

  • Inflation surging to a peak of 17% before falling to 11% over the next three years

  • House prices plunging 31%

  • UK unemployment more than doubling to a peak of 8.5%

  • UK interest rates peaking at 6%

The Bank of England has run annual stress tests on the UK banking sector since 2013, as part of its response to the 2007 financial crisis.

However, it was postponed this year due to the war in Ukraine, which disrupted markets and put banks on high alert at the start of the year.

It means the results from the UK’s largest banks – which include NatWest, Barclays, HSBC, Lloyds, Standard Chartered, the UK arm of Santander, Nationwide Building Society and Virgin Money UK – will be made public in summer 2023.

The Bank of England has insisted that that the stress test is “not a forecast… it is a severe but plausible rail risk scenario intended to test the resilience of the UK banks to a range of materially adverse economic shocks.”

However, there could be turmoil in the housing market if UK interest rates rise toward 6% by next summer, as the markets are currently pricing.

Many borrowers are due to come off their existing fixed-rate deals in 2023, and would face a sharp jump in borrowing costs if rates are that high.

Markets are already pricing in a roughly 75 basis-point increase in Bank Rate before the end of the week, according to economist Sam Tombs of Pantheon Macroeconomics.


Homesearch EOS

Email the story to a friend


  1. Norfolk Steve

    The headline has got to be in line for the ‘Most Misleading Headline Of The Year Award’.

    1. CrashforourChildren

      I would say this is actually a very optimistic forecast.  I predict a much sharper turn in house prices, and long overdue.  Couples should not be putting themselves on the breadline to own a home.  We badly need this correction, and I suspect, that supply and demand will put paid to that one.

  2. ChrisLang86

    I’m sorry but this is the most outrageous headline ever. Typical press preaching doom and gloom.

    1. krosotv

      I’m actually appalled a site that is meant to be for the industry is actually creating a situation that will harm the industry.  If you tell people enough times something will happen they will start to believe it.  An absolute self fulfilling prophecy, PIE should hang its head in shame.

    2. CrashforourChildren

      Given our current economic situation, this looks to be an “optimistic” prediction.

  3. Agent75

    Really PIE? Have you turned into the Daily Mail with headlines like that? If you wish to continue to claim to be the Property Industry’s eye, you’re going to have to do better, or change your name from Eye to a more suitable body part…

  4. Agent Derbyshire

    Really? What utter nonsense!

  5. Woodentop

    They said they would drop 50% after 2008 fiasco, lol. Prices will hardly move as most sellers are also buyers so they won’t want to lose on their sale value. All that happens is people stay put and headlines like this give idiots an excuse to throw in stupid offers which goes nowhere. Irresponsible reporting.

  6. Property Ear

    Does this site belong to you harsh critics? Do you pay anything for it? What do you contribute? Don’t shoot the messenger.

    1. morrisseysillegitimateburger

      Whether the contributors pay for it or not is entirely irrelevant.

      This is a blatant attempt in creating shock and awe.

      They could have structured the article in a totally different style but they chose to go the click bait route. Their core demographic is the property industry and it is on a knife edge at the moment, headlines like this are irresponsible and upsetting.

    2. Woodentop

      Yes it does, its a forum which even you champion free speech. Some agree, some don’t but then that is what debate involves. Its the headline that is a problem by the banks. Some will panic, some won’t and not move, others will be wealth protected no matter the cost. Oh isn’t that what the housing market has always been.


      A sensational headline on a crystal ball does more harm than good, particularly if it fails to materialise.

  7. Head_Shepherd#2

    Sounds like Basel III stress testing to me, not a forecast and certainly not a prediction and definitely, as others suggest, not an appropriate headline.  Just the BoE checking that banks have enough capital to ensure business continuity in extreme economic situations.  Just plain old bank risk management.  Nothing sensational for sure.

  8. Property Ear

    I disagree Morrissey, it’s Eye’s right entirely to print whatever they think fit.
    You and the other dissenters do of course have the right to put forward your alternative views. I have no firm allegiance with Eye. I quite simply believe in free speech and a free press. You could of course set up your own blog and tell the trade all is well!
    My own view is that a huge storm cloud hovers over the market and is about to let rip – the public would rather know the truth than a load of estate agents hype.

    1. morrisseysillegitimateburger

      Again, you have missed the point.

      They can print whatever they like but sensationalism is for the tabloids and they aren’t reporting the true clear facts. As you would know, if you were in the industry as you claim.

      1. jan-byers

        You have no ideas if it is sensationalism or not

        Time will tell

  9. Property Ear

    No, you’ve missed the point! What you’re trying to say is that they can print whatever they like as long as you agree with it!
    Incidentally, I am an independent estate agent of 35 years standing whose business thrives by telling our clientele where it’s at!

  10. Certus

    I love a bank of England Forecast, always incorrect.

    1989 there was a 40% drop, interest rates were 16% & unemployment at an all time high.

    2008 BoE suggest another big drop and half way in they also stated that there would be a ‘double dip’ recession. Ignored that other factors were stable. This lasted 5 qtrs and there was just a 10% drop which was quickly recovered.

    2016 referendum, BoE stated that a leave vote would ensure a 30% drop in property prices. Gotta love that idiot Carney. Completely ignored that other factors were stable so very wrong again. 10% increase.

    2019 Covid  predictions were I believe understandably vague for property but generally pessimistic for GDP.

    We should expect them to be wrong again however we can see the media bandwagon rolling negative and pessimistic stories like this day after day – convincing everyone of impending doom. They could indeed steer us into a recession.

    But as I write  – a viewer last night has made an asking price offer on a house we have had for a while –  Its all fine after all.


    I’m gobsmacked reading all the comments above. Between late 1989 and early 1994 houses prices dropped 20% nationally  –  and more in some significant regions.  Not only that, transactions went into a pregnant pause for the first year and were then led by repossessions, deaths and divorces.  I remember very clearly valuing a property in 1997.  The owner offered me a cup of tea and had opened a page in the local newspaper without telling me and had placed it by the cup.  His house was clearly advertised there.  When I told him somewhat indignantly that he’d told me his house wasn’t on the market yet and that was the exact figure I was about to tell him I’d valued it at, he told me to look at the date on the top of the page.  It was September 1990 the year he had bought it.  Taking into account inflation at the time which was in high single figures, the drop in houses prices over the period was a good 30% and it had taken 7 years for the market to bounce back to the level it had been at previously.
    Don’t think it can’t happen again, particularly when house price earnings ratio is higher than it was then, and many people would argue that it simply brings residential property values down to a sustainable level.
    But of course it won’t happen this time because we in the industry say so, just as we did then.

    1. Woodentop

      No we didn’t say it wouldn’t back them and 15% mortgage interest rate had a big hand in it and you are talking about 30 years ago. If you could up with an argument more in keeping with modern times, your comments may be relevant to have ago. The last so called forecast was a dismal flop and hopefully so will this one as the consumer is far better informed today and learnt what to do with a called impending disaster.

  12. Neil Robinson

    I just hope that the general press isn’t using the same headline.

    The press really do have a lot to answer for in this country with their self fulfilling prophecies.

  13. Charlie Lamdin

    In 25 years I’ve never seen such blind, naive denial in the comments of any industry article. Even with the brutal facts of reality staring you in the face, you’re still in denial?? Your clients should be VERY worried. Your delusion and denial = their nightmare. Wake. Up. You. Bozos. Your clients are trusting and RELYING on you to get them moved. I’m horrified. This is exactly the kind of short sighted attitude that gives the whole industry a bad name.

    Read the article again, then point out which parts you think are false or misleading?


    Do you really think we’re in this situation because people “talked the market down”?!

    Bravo PIE for delivering the truth bomb that some of your delusional readers need to hear before they ruin their clients lives by telling them everything is ok and they don’t need to drop their price because house prices always go up, right? *Facepalm*

    1. Woodentop

      So your advice from agents to vendors is what precisely? and if your advice is wrong, what happens next!

      1. jan-byers

        What if your advice is wrong ?

        1. Woodentop

          Exactly the point. When do you advise on a crystal ball with no history of such an event. “Keep calm” at this time.  
          So what would you  advise?

  14. Robert_May

    Transaction volumes have more of an impact on agent incomes than prices which ebb and flow.  Concentrating on prices rather than what might or might not happen as lending criteria tightens is less useful than the might and might not movements of prices.

  15. Anonymous Coward

    The headline is very click-baity, but the article itself is just reporting on the regular stress tests that banks have to undergo as a matter of diligent and prudent regulation.

    The interesting things that you should be paying attention to are:

    Given the circumstances it is quite possible that UK GDP could really fall by 5% over the next 12 months.

    Likewise, inflation is likely to surge again because of the fall in the value of the pound.  17% would be nasty but is not an unreasonable assumption.

    I’m fairly sure that house prices won’t “plunge” by 31%. But with inflation at 10% and house prices being stagnant for 30 months the effect would be the same. Or 12 months of 15% inflation and prices dropping by 10% would have the same overall effect…

    Our minimum unemployment level is currently 3.7%. This is partly the “work-shy” but it’s mainly those who cannot work for perfectly decent reasons such as their health or disability.  There are currently 2 million vacancies that cannot be filled by those who are currently unemployed.  However, if business start going under because of increased costs then those vacancies will vanish and the people ending up unemployed will have no choice but to join the dole queue. Peak unemployment reached 11.9% in March 1984. It could happen.

    I think this last one is a given – UK interest rates may have no choice but to be set at 6% for a while.  It’s either that or have both nasty inflation and a devaluation of the pound.

  16. jan-byers

    I am a developer

    We have had 5 mortgage offers cancelled today by Halifax and NW

    They have withdrawn the product

    They are going to offer the buyers a new product at a higher rate

    The buyers are totally spooked

    1. Rob Hailstone

      Cancelled, before or after exchange?

    2. Woodentop

      Not the first time this has happened, won’t be the last. There is nothing you can do about it, forces beyond your control unless that is you are willing to drop the asking price by 15% as a cherry before you’re left with them and it drops to 30% as some predict, but then it may not happen!

  17. CrashforourChildren

    I hide behind no mask, my username says it all.

    I am not a housing market rep, but I am interested in seeing how the market is developing and adapting.  I have skirted by all the vested industry interest comments of “how shockingly inaccurate” and thought, hang on. this is what you all said at the end of the 80s when the house prices across the UK dropped 20% on average.   The UK economy is now in turmoil, the likes of which we have not seen since post war Britain.  If we weather this and manage to maintain the slender stilts which are currently propping up the housing market, it will be no less than a miracle.   I have two adult children who have each been saving hard with their partners for 5 years and are getting further and further away from owning a house, not closer.   The latest interest rates have put them back yet again.   There is only one viable solution to our situation, and it is a painful one, however it is required.   House prices must drop dramatically to correct a situation that has been allowed to continue far to long.

    1. Robert_May

      In order to free up the two properties for your children two properties have either got to be built or somehow freed up from the current occupants, how does a house price correction achieve that? There are not enough properties for everyone who needs one.

      1. CrashforourChildren

        There are plenty of properties vacant where I live in the North West of England, none of which are affordable. I would forgive the prices if someone on an average wage for the region (not the national average) could afford one.  My daughter is on a decent wage and her partner works for the foreign office.  My Son works in Aerospace on fighter aircraft, and yet, they are priced out.  This is quite obviously not sustainable by any stretch.   You talk about shortage of houses, however you failed to mention the proportion of houses being snapped up by the “buy to let” brigade.   At the moment, you are either already on the ladder or you are doomed to rent.  Price correction is required and it is happening all by itself, as it should.

    2. Woodentop

      Banks won’t let them drop that much as people will be in negative equity and you can’t sell if its mortgaged. All that will happen is prices will possibly drop a small amount which is normal market fluctuations on prevailing conditions, but once its seen to actually be happening, it will stop as people will stop moving and there will be a price freeze. Can’t sell because its too expensive to buy, can’t sell because I will loose my equity, can’t sell because the mortgage company won’t allow me to go into negative equity and won’t buy because I want to see if it will drop more or I can’t afford it.


      That is the reality of the housing market, some are inflation proof, some a little affordability, other have to save and the rest are left out of ever purchasing a home and have to rent. Once incomes come up to affordability the prices rise again and so the story repeats itself when it peaks for whatever the reason and those at the bottom get even further left behind.

      1. CrashforourChildren

        I understand your comment regarding banks not allowing house prices to fall, but this may well be out of their hands.   The Bank of England has just had to step in to save the economy following government policy following the disasterous mini budget.  (As far as I am aware) This is a first for the history of the UK.  Inflation is the arguably the biggest problem, and with the pound plunging ever lower due to loss of confidence, imports will go up exacerbating the problem even further.  They cannot help house buyers AND keep inflation under wraps at the same time, the two are at odds with each other. It is going to be interesting to see what happens over the coming months and years. My prediction is that cutting inflation will be the target, and interest rates may well hit 7 or 8%. negative equity is an inevitability for most recent buyers, and stagnation will follow, but for a much longer period of time than we had in the late 80s.  Wages are also stagnant, and have been for quite a few years, I don’t see that changing any time soon.   Given these factors, many of the buy to let investors, will either have to attempt to force rent up to meet their mortgage payments (government intervention will be inevitable), or sell up due to mounting debt or be reposessed.  (more likely) Lots more property on the market, supply and demand = lower house prices for everyone, and for a change the power will be in the hands of the buyer.


You must be logged in to report this comment!

Comments are closed.

Thank you for signing up to our newsletter, we have sent you an email asking you to confirm your subscription. Additionally if you would like to create a free EYE account which allows you to comment on news stories and manage your email subscriptions please enter a password below.