Fog shrouds the Canary Wharf business district including global financial institutions Citigroup Inc., State Street Corp., Barclays Plc, HSBC Holdings Plc and the commercial office block No. 1 Canada Square, on the Isle of Dogs on November 05, 2020 in London, England.

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LONDON — U.K. house prices will fall by up to 10% this year, as higher mortgage rates and the broader cost of living crisis curtail home buying, Lloyds Bank CEO Charlie Nunn told CNBC on Tuesday.

The British housing market has been under pressure following former prime minister Liz Truss’ disastrous “mini-budget” in September, which prompted lenders to withdraw around 40% of all mortgage products from the U.K. market amid concerns over spiking interest rates.

The U.K. property sector remained sluggish in recent months, as the Bank of England continued to hike interest rates aggressively in order to reel in double-digit inflation. It projected that the country was entering its longest recession on record.

Inflation hit 10.7% in November, and the Bank has hiked rates at nine consecutive policy meetings to lift its main rate from 0.1% to 3.5%. Further increases are expected in the coming months.

A report from British property website Rightmove on Monday showed asking prices for homes rising slightly in January for the first time in two months.

“Our base case for 2023 is we will have a recession — a mild recession — GDP of about -0.1% this year, unemployment staying strong and that’s more because of the constraints on the supply side, interest rates about 4% and a recovery coming into 2023,” Nunn said on the sidelines of the World Economic Forum in Davos, Switzerland.

“The other challenge a lot of our customers are focused on is house prices and we do see house prices softening about 8-10% this year.”

The independent Office for Budget Responsibility (OBR) forecast that U.K. households face their sharpest fall in living standards on record. As the head of the largest retail and commercial financial services group in the U.K., Nunn revealed Lloyds was seeing a “tale of two stories.”

“First of all, there is a relatively small but really important group of customers with mortgages and also without who are going to struggle to make ends meet in the cost of living. That’s about 1% of customers we can see in the U.K. and we really need to focus on supporting them,” he said.

“We’re seeing a much larger set of customers having to adapt their spending and adapt to both higher costs of living and higher mortgage spend, but there still is real resilience in businesses, in households and in individuals at the higher income levels in the U.K. and strong spending we’re seeing going through.”

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