Will house prices fall in 2023?

An increase price of mortgage loans could cause the UK property market to plummet as a result of the biggest decrease in home prices per month since 2008.

The market has been overheated, housing prices have seen an increase of over 10 percent during the epidemic. Property prices dropped towards in 2022’s final year, however, asking prices surpassed forecasts in January 2023 when they rising 0.9 percent, according the property site Rightmove.

Why are UK house costs so high?

Prices for houses are falling off their dizzying heights during the pandemic (more on this below). However, they remain exceptionally high by historical standards and have been rising faster than wage inflation.

The average price of a UK home has nearly tripled since the beginning of the century. The cost of homes has been rising by more than 60% over the last 10 years, according the Nationwide the building society.

On the surface, it looks like the primary driving factor has been simple demand and supply: there is a shortage of housing and a high demand for property.

While this may be an aspect but low interest rates have actually been driving the housing market from the time of the onset of the pandemic. The ability to borrow at a low cost allows people to pay for mortgages.

In the meantime, since the end of December, 2021, in the Bank of England has increased the base rate by nine times from its previous record low of 0.1 percent. The base interest rate now is 3.5 percent.

This is due to the soaring inflation rate, which hit 10.7 per cent in the year through November.

A rise in mortgage rates has increased the cost to purchase a home, and the housing market has started to take the brunt of this, with prices declining for four months in consecutive months.

More rate increases are anticipated in 2023, which could significantly dampen the housing market because it means mortgage repayments will rise.

The current crisis in cost of living is likely to be the primary cause of a slowdown in residential property. As household budgets come under pressure, fewer are able to afford to buy homes.

It’s believed that some first-time buyers might hold off while they wait to see what happens, which could be a negative impact on the market.

Have the prices of houses dropped?

House price shows that house price growth is slowing , and even reversed. This is due to the fact that demand from buyers is beginning to decrease as living costs increase.

Property website Zoopla stated that the housing demand had dropped by 50% from the last year, up to December 2022.

Below we present the house prices from two of the biggest lenders.

Halifax House price index

The most recent data from Halifax the UK’s biggest mortgage provider, showed a 1.5 percentage drop in the price in December. This marks the fourth monthly dip in a row. This puts the average UK home price at PS281,272.

Prior to that , the price of homes had fallen 2.3% in November, which was the biggest drop since the 2008 financial crisis.

Meanwhile, annual growth slowed from 4.6 percent to 2.2%, which is a substantial drop from June’s high of 12.5%.

The lender – which is the largest mortgage lender in the UK – has said that it would be foolish to rule out significant annual price reductions in the next few months.

A rise in interest rates and uncertainty as to the extent to which the cost of living rises will influence household bills are in the market.

Average two-year fixed mortgage interest rate rose to 6.55 percent in October, though this has now cooled to under 6%. Here’s more information about the average mortgage rate and the way they have changed.

This has led to households spending the largest portion of their income in mortgage payments since 1989 at a time when the rate of inflation is running close to a high of 40 years.

Nationwide house price index

The price of houses increased by 2.8 percent during the year through December, down from annual growth of 4.4%, according to Nationwide Building Society.

This also represents an 0.1% monthly decline in house prices, the fourth monthly drop over a period of time. House prices now average at PS262,068.

As of the month November Nationwide reported a 1.4 percentage drop. This was the biggest since June 2020, which was the height of the Covid pandemic.

“The market has definitely been affected by the chaos that occurred following the mini-budget which led to a sharp rise in the interest rates of market participants,” stated Robert Gardner, Nationwide’s chief economist.

“Higher cost of borrowing has added to stretched housing affordability in a period when the household budget is already under pressure due to high inflation.”

The rate change for mortgages is a result of a higher base rate of interest – currently 3.5 percent – that is set by the Bank of England as part of its effort to curb the rising inflation rate, which is mainly caused by the fallout from Russia’s war in Ukraine.

It also pointed to factors supporting prices including the shortage of new homes, strong increase in wages, and cuts to stamp duty revealed in the mini-budget of the government.

Which are regional variations in the cost of housing?

There are many regional variations in prices for homes in different regions, each with distinct levels of growth.

But, all countries and regions witnessed a rise in annual house prices in 2022. However, the rate of growth has been slowed.

Nationwide compared average house prices between October and December the same timeframe in 2021:

East Anglia was the strongest region to perform in England in terms of average prices growing by 6.6 percent compared to the same three months in 2021.
Scotland was the worst performing region, with a house price rising by 3.3 percent
Wales witnessed a noticeable decline in growth, slowing to 4.5% from 12.1 percent in the preceding three months
Northern Ireland saw prices increase by 5.5 percent, which is much less than the 12.1 per cent increase that was recorded in the third quarter of 2021.
Prices for homes rose by a second, which is the slowest in London. However, prices in London remain the most expensive in the UK at PS528,000, almost twice the UK average.

How do prices differ for different types of property?

The pandemic caused huge changes in home preferences, and mortgage lenders have continued to see differences in price trends between property types.

Since the beginning of the epidemic, the cost of family homes, detached homes are increasing much more quickly than flats.

A lot of workers continue to work from home a handful of times per week, so there is a need for larger spaces with enough space for a home office. The hybrid model of working will continue, so will the trend toward larger houses.

Statistics from Nationwide Building Society show that the average price of:

A detached property has increased by 26% equivalent to nearly PS78,000 cash terms between the year 2020 to 2022. If we look at 2022 as a single year detached properties, detached homes increased by 5.9%
Flats rose by 13.4 percent on average, (PS23,000) between 2020 between 2020 and 2022. In 2022 alone, the average cost of flats increased by 2.1 percent.

Figures from The Office for National Statistics show a slightly different trend, with terraced and semi-detached homes rising in price the most. The year from October 2022, the average cost of:

Detached homes reached PS468,376, which is up 12percent over the course of the year.
Semi-detached home prices reached PS287.383, an increase of 14%.
Terraced houses hit PS242,690, which is an increase of 14%.
Flats were PS235,237 at the time, an increase of 8.6%

Is there a greater demand for rural locations?

With the possibility of working from home to be a longer-lasting aspect of the lives of many the demand for homes outside cities has jumped.

Lockdowns underscored the value of space and greenery, which led to a rise in curiosity about properties in coastal and rural regions, according to ONS data.

In some hotspots, house prices are rising three times the rate of national inflation. This includes places such as:

Conwy located in North Wales
North Devon
Richmondshire in the Yorkshire Dales

Estate agents have reported a high level of interest in rural and remote properties in Scotland.

In the meantime, a few individuals have begun to return to commuter belts and cities and this has pushed up the average price of properties in these areas.

Will house prices crash in 2023?

Although we aren’t able to say for sure what the future holds recent increases in the UK base interest rate have created worries that the market could crash.

After the controversial September mini-budget several mortgage lenders retracted deals and raised rates, pushing up the cost of mortgages across the all levels.

Since the Bank of England has raised the interest rate at base to 3.5%, these effects are likely to be intensified. It is anticipated that this will reduce the demand from potential buyers and lead to house prices to decrease.

There are other elements that could put a dampener on the explosive growth we have seen in recent years, namely the crisis in cost of living. The record prices for gasoline, the rising cost of energy, inflation and tax increases have meant that many households have less money to spend on buying houses.

While the annual growth rate for house prices has been high all over the board, house prices are now declining each month. If the demand slows and people have smaller deposits in their savings, the rate of rising house prices could drop further.

However, it’s not a guarantee that the prices of homes will fall because demand continues to outstrip supply in many areas across the UK.

The property website Rightmove reported the publication of a 0.9 percent increase in the asking price in January, the biggest rise in the last the year since January 2020. The mortgage rates are dropping, meaning buyers are returning into the marketplace.

Demand is likely to be able to cushion the blow, which means the cost of housing could plummet instead of crashing.

House price estimates

In light of the constant competition for space, many prediction for the housing market are positive. However, the perfect combination of high inflation and rate hikes is expected to affect the housing market.

Here are some predictions for the future:

For the month of January in 2023 Halifax predicted that house prices would fall around 8percent during the course of the year. The Halifax forecast said that a decline of 8% would result in that the cost of an average house returning to April 2021 levels which are still over pre-pandemic prices.
In December 2022 Robert Gardner from Nationwide said that house prices could have a small decline by 2023, which is around 5%. The economist said that there will need to be a significant deterioration in the labor market in order to cause the double-digit drop that have been suggested by some forecasters
Lloyds Bank has forecast house prices to fall by 8% in 2023. The bank has set an aside PS668 million to pay off bad debts that may arise due to borrowers struggling to make repayments
The Office for Budget Responsibility has projected that prices will fall by 9 percent between 2022 and 2024, before rising throughout 2025
In November 2022 the property website Zoopla stated that it was expecting prices to fall by 5% in 2023
The Bank of England has predicted house price growth to be slower later in this year, as mortgage companies expected to cut down on loans as the economy suffers
In July 2022 Wesley Davidson, founder of mortgage broker Fox Davidson, said he believed that the average UK house price would decrease by 10% over the course of 12 months.

The high inflation rate has led to an increase in interest rates and is expected to continuefor the foreseeable future, slowing down the growth of the housing market.

Prices on the market increased 0.9 percent in January 2023. This brought the average price to PS362,438, according to property website Rightmove. But, the number of home buyers is down 36% when compared to the same month last year.

Zoopla’s house price index revealed that sellers were required to lower their asking prices by 4 percent on average to ensure an offer recently. Surveyors are also reporting fewer inquiries from buyers who are new.

All of this could have a knock-on effect on what house prices are being sold for since a decrease in demand means more buyers can bargain over the price of properties.

So far , the slowdown was not too significant, however it is possible that it will increase in speed as interest rates continue to climb.

The good news is that home buyers can now save some cash on taxes with the reduction in stamp duty rates.