House prices are set to fall 10% in the next two years, according to Knight Frank.

The gloomy forecast comes from Tom Bill, the agency’s head of residential research, who has revised the more optimistic prediction he made a few months ago.

Bill says prices will drop 5% each year over the next two. He had previously said there would be increases of 3% and 1% in 2023  and the following year.

“Prices have grown by around 23% since the onset of Covid, largely due to an imbalance between low supply and high demand. We expect the growth that took place during the second half of the pandemic will be reverse,” he says.

In London, where the market appears to be under more pressure, house values will go down more sharply, 6% next year followed by 4% in 2024, he says.

Prime London locations will do better than the suburbs with a 3% fall next year, and a flat outcome in the following 12 months.

Panic caused

The Knight Frank assessment comes less than two weeks after Chancellor Kwasi Kwarteng’s Mini-Budget caused panic in the stock market, and prompted many lenders to withdraw their mortgage offers.

The latest Nationwide house price index, published earlier this week, revealed the first signs of slowdown in the housing market.

House price growth fell from 10% in August to 9.5% in September, as 10 out of 13 regions recorded a slowdown in the third quarter.

London reported the weakest figures with growth rising slightly from 6% to 6.7%. The South West was the strongest area with prices up 12.5%, although still down from 14.7%.