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Santander UK says that it expects house prices to jump 10% this year, falling back to 2021 levels.

The high street bank says UK consumers face a difficult year ahead, with inflation and interest rates touching 40-year highs, at 10.1% and 4.25%, respectively.

It says: “The economic outlook for 2023 remains uncertain. Inflation is forecast to be above the 2% target rate for 2023 putting further pressure on real disposable income.

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“We expect house prices to decrease by 10% in 2023, falling back to 2021 levels.” 

The bank’s comments come as it posts first-quarter pre-tax profits up 11% to £547m, largely due to the impact of higher base rate charges, rising net interest income and banking net interest margin – the difference between what it pays out to savers and what it charges lenders. 

However, its mortgage balances fell 2.2% to £183m in the three months to the end of March compared to the previous quarter, as home loan applications across the market have slumped 37% year-on-year, according to Bank of England data.

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The high street lender adds that the “mortgage market trends we saw at the end of 2022 have continued into 2023”.

Santander UK chief executive Mike Regnier says: “Following rises in the base rate, we have seen the most competitive ISA period for several years and a further slowdown in the mortgage market.”

He adds: “The economic outlook for 2023 remains uncertain with inflation predicted to remain above the 2% target meaning many households and businesses will continue to face difficult decisions in the months ahead.”

By Roger Baird

Source: Mortgage Strategy

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