U.K. house prices may fall 16% due to pandemic, BOE says
U.K. house prices may fall 16% because of the economic upheaval caused by the coronavirus, according to a desktop stress test by the Bank of England.
That decline would be in line with the fall in residential property values during the financial crisis, though the central bank says that banks would not suffer "very material losses in the event of default" this time because of more resilient balance sheets.
The housing market has been put on ice during the pandemic as the government discourages viewings and transactions. Lenders have been pulling higher loan-to-value mortgage products to protect themselves in case prices fall substantially as the economy shrinks and unemployment rises.
After values fall, the BOE assumes they will then rise gradually as economic activity in the U.K. recovers and unemployment declines. Banks would face impairments of just 4 billion pounds ($4.95 billion) under that scenario.
U.K. house prices fell 0.6% in April from a month earlier, mortgage provider Halifax said Thursday. The annual rate of increase slowed to 2.7%.
"The limited number of transactions available means that calculating average house prices has inevitably become more challenging," said Russell Galley, managing director at Halifax. "This will lead to a great deal of volatility until more data becomes available."