This is what the house prices fall could mean for you – and how bad it could get

Watching the economic turmoil unfold over the last 12 months has been like observing a devastating motorway pile-up in slow motion; with a 16-wheeler truck splayed across all three carriageways by the start of 2022 – the camera pans round the corner to show thousands of unsuspecting motorists heading full throttle towards the carnage.

Over the last few weeks, we’ve finally seen vehicle after vehicle plough into the wreckage. The cars can either be businesses, households, or economic indicators in this analogy – take your pick. All of them are going to struggle to avoid the pile-up. Some of them will have airbags, and some won’t. So, now, to house prices.

Even before the war in Ukraine, things didn’t look great. Energy prices had already started rising and, combined with supply chain issues, inflation was beginning to rear its head. With the war underway and energy supply being used as a weapon by Russia, things were inevitably going to get much worse quite quickly. And let’s not even bother with the mini-Budget.

As Christmas rolls around, inflation is at a 40-year high, unemployment is starting to rise, retail sales are falling – and bah humbug, things are going to get much worse before they get better.

The latest vehicle to join the pile-up is house prices, which according to Nationwide fell for the second consecutive month in November – and look set to fall much further and much faster over the months ahead.

Although this might have been a boost for those looking to get on the property ladder, the sharp rises we have seen in interest rates have tipped the balance for many first-time buyers – leaving them unable to take advantage of lower house prices.

It’s astonishing to think that only a year ago, interest rates were at 0.1 per cent. Today, they are a full 2,900 per cent higher at 3 per cent – with most economists predicting further rises all the way through to the middle of next year when they will peak at somewhere close to 5 per cent.

It’s undeniably depressing if you have to put your hopes and dreams of home ownership on hold – especially with no prospect of conditions easing in the near future. And it’s worse still for those whose circumstances are forcing them to sell – and lock in losses – at a time like this.

This too will pass, of course. And for those who have the financial flexibility, there will be opportunities to snap up incredible deals over the months ahead. While house prices are forecast to drop by at least 5 per cent in aggregate next year – there will be many individual cases where people are forced to sell at a much greater discount.

If you can afford to borrow in a 5 per cent interest rate world, then now is a good time to have your finances in place, and get aggressive with your offers.

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For those who were hoping to move – perhaps upsizing to accommodate a bigger family – there’s now much more to be said for doing the move in two stages. If you can get a reasonable offer on your house today, move out into rented accommodation and look for your next home once you are a chain-free buyer. Those who have the ability to move quickest will be the ones who will snap up the bargains.

Alternatively, you could do worse than hunkering down and investing a little money in upgrading your home – so that when conditions do improve, you can command the very best price for it.

It’s going to be a bleak few months ahead – but there’s no point wallowing. Use the time to prepare – and get yourself ready for when things improve.

James Daley is managing director of the consumer group Fairer Finance