What’s next for house prices UK 2023?

After two boom years of record house price growth, now rising interest rates and the cost of living crisis are cooling activity and forcing UK house prices down.

2022 was certainly a turbulent year; a frantic cocktail of house prices going up, higher mortgage rates coming in and property prices falling following the chaotic government mini-budget.

However, while the market appears to be slowing, the shortage of properties is keeping prices high in many areas, so what’s going to happen?

24H has gathered property professionals’ opinions to give you a picture of the year ahead if you may want – or need – to move house.

Let’s check out their predictions!

UK house prices appear to be on a downward trend.

Prices will fall

Savills estate agents expect to see the higher cost of debt leading to fewer transactions and prices reducing in 2023 and into early 2024. It predicts that house prices will fall by 10% nationally in 2023, with the losses being made up by 2026, however, it anticipates price falls and repossessions being far less than the levels seen in the early 1990s and post-2008.

They also believe that first-time buyers and mortgaged buy-to-let investors will be most affected by changes to the affordability of mortgage costs. Savills also predict a housing downturn with build costs and development finance becoming more expensive, leading to fewer homes being built, however, they note that this may not be politically acceptable for long, given the economic benefits from housebuilding and the impact on society from failing to build houses.

Buyers are still out there

A survey carried out by Savills in December showed that buyer commitment had improved since its last survey in August: forecasts are that the most active buyer groups are needs-based buyers in early 2023, with equity-rich buyers returning as the year goes on. Of those surveyed who gave a reason for moving, 41% were downsizing; 36% were upsizing and 23% were in the market due to relationship breakdown, bereavement, or a job change. A total of 3% of all respondents said they were committed to moving within the next three months while 12% wanted to move over the next six months. 77% of Savills agents say there are more buyers aiming to take advantage of lower prices in 2023.

Frances McDonald, Savills residential research analyst commented: 

A return to a more stable political and financial environment following the tumultuous ‘mini-budget’ has led to a more positive outlook among potential buyers and sellers, despite the expectation of further economic uncertainty.

While there are very clear headwinds, this survey suggests that there is a strong seam of demand in the market, but that it will be clearly split between those who need to move quickly and more discretionary buyers equally committed to moving but happy to bide their time over the next 12-24 months, to ensure that they get the right home at the right price.

UK house prices edging lower in some areas.

Cost of living crisis squeezes household budgets

Daniel Chard, conveyancing solicitor and property expert at Bird & Co solicitors of Lincoln, Newark and Grantham, said that the rising cost of living is likely to make buyers more risk averse and to consider any purchase very carefully.

He predicts:

  • Less demand from first-time buyers
  • Property prices remaining low
  • Growing demand for sustainable housing
  • Interest in weather-dependent homes
  • More people moving to the countryside

Mr. Chard commented:

There are some positives for buyers to take into 2023. With average house prices still considerably more expensive in the city than in the countryside, relocation could be on the cards for a number of people next year. What’s more, buyers may be considering eco-friendly and weather-dependent options for their future homes, more than ever before.

He added that despite home values skyrocketing in the pandemic-driven surge, the housing market is now beginning to slow; the annual rate of house price growth slackening to 4.7%, down from 8.2% in October. This decrease has been the biggest drop since the beginning of the financial crash in October 2008. The fall is also the third in a row, with property market analysts forecasting this decline to continue throughout the new year.

Mr. Chard believes that the reasons for the slowdown are a shortage of housing stock, high demand, and escalating interest rates, while the rising cost of living means household budgets are stretched.

Fewer new homes may be built this year, adding to the UK property market woes.

Recovery in sight

In line with most property professionals, experts at onlinemortgageadvisor.co.uk predict house prices to fall in 2023-24.

A spokesman said:

While mortgage lenders are reducing mortgage rates now, with some at below 6%, it may not change the general outlook significantly. The stamp duty cut makes a crash unlikely, as it makes it easier for some buyers to buy. There’s also support from government schemes. Some of the major builders are reducing the number of new homes they build, so supply will be lower, which will keep prices up.

A recovery in the UK housing market is expected and predictions are that:

  • Prices will continue to fall by up to 8% in 2023 – due to mortgage rate increases putting pressure on prices as demand for properties reduces.
  • There will be a recovery over the next two years – the Office for Budget Responsibility projects prices falling by 9% before rising in 2025.

A shift in home buyers’ housing preferences

According to estate agent Purplebricks, while the cost of living crisis is changing priorities for sellers, many people still plan to move in 2023. A majority of homeowners, 79%, say their priorities have changed when it comes to selling and buying, while just under a quarter, 24%, are more likely to list their home and buy another in 2023. Home buyers are considering spending less on a new property than planned (18%); 6% more than usual would consider a house that needs work done to it and 49% said they were staying put due to the cost of moving.

Tom Greenacre, Managing Director of Purplebricks, said:

It’s understandable that people are nervous about the cost of selling their home and moving house given the cost of living crisis – but they don’t have to be. Buying a new home in a cheaper area or downsizing where children may have left home, for example, might leave you better off.

Housing affordability is a growing problem for home buyers.

Return to a more `normal’ market

Rightmove’s House Price Index in December 2022 noted falling prices: the average price of a property coming to market fell by 2.1% in December, as sellers tried to achieve a sale. At the end of 2022, new seller asking prices were 5.6% higher than the same time the previous year, set against 6.3% annual growth in 2021.

Rightmove predicts a relatively soft landing, with prices falling by 2% on average in 2023, with some locations and property types faring better than others. Viewers are actively looking for homes; according to Rightmove, views of homes for sale are up 11% compared to the same time a year ago, implying that potential movers are considering their options. With mortgage rates settling, buyer demand is starting to rise, and they predict a pre-pandemic market returning during 2023.

Tim Bannister, Rightmove’s director of property science said:

We predict an overall drop of 2% in average asking prices next year as economic headwinds continue to soften activity and lead to a more normal market, though price falls will be tempered by few forced sales.

However, affordability constraints will bite in some segments and sectors of the market much more than others which makes a national average price prediction for new to the market properties more difficult than usual this year. This will lead to a more pronounced hyper-local market, where one side of a city, town or even street could fare better than another, depending on the types of property available and the desirability and affordability of the exact location. In this multi-speed market, working with a good, local estate agent who knows every corner of the area will be vital for both buyers and sellers.

After many months of having to act extremely quickly, there will be less urgency in the market as buyers wait for the right home to become available for their needs, and some sellers will hold out hoping for a price that matches their expectations. We could therefore see a stand-off in the early months of 2023 between some sellers who are in no rush to drop their prices, and those affordability-strapped or hesitant buyers. This will lead to homes taking longer to sell, and we could see a return to the more normal time to find a buyer of around 60 days.

Economy dictates property market slowdown

According to the Nationwide building society, the average UK house price dropped for the fourth consecutive month in December – the worst run since 2008. Month-on-month house prices went down 0.1% between November and December last year, compared to 1.4% between October and November. This meant annual house price growth in the last month of 2022 was 2.8% – 2.5% lower than their August peak. The average price of a UK property in December last year was £262,068. 

Robert Gardner, Nationwide’s chief economist, predicted the housing market to slow down further as we enter a more challenging economic environment. He said:

It will be hard for the market to regain much momentum in the near term as economic headwinds strengthen, with real earnings set to fall further and the labour market widely projected to weaken as the economy shrinks. The housing market took a hit after the mini-budget in September last year, which saw mortgage rates reaching 14 year highs

While it has stabilised since then, Mr. Gardner added that the UK housing market has shown few signs of recovery, commenting:

The fact that the housing market remained buoyant in the first three quarters of 2022, despite weak consumer confidence on the back of a stagnant economy, falling real incomes and a near tripling of mortgage rates, provides some reassurance that there will be a pickup in activity in the New Year.

He said that one good reason for optimism is that while forecasters expect the unemployment rate to rise towards 5% in the coming years, that figure is still low by historic standards. 

Demand for sustainable houses

Another factor that might affect house prices is buyers’ increasing interest in a home’s sustainability credentials. A survey on people’s attitudes to sustainable homes carried out by housebuilder Redrow revealed that 82% say they want an energy-efficient house and would be willing to pay more for it.

63% of those surveyed wanted a more sustainable home, and 38% said they wanted features such as thermal wall insulation, efficient boilers, and renewable energy options, all of which indicate that change is required to cater to the demand for sustainable homes. This is endorsed by the popularity of solar panels and heat pumps. In line with this, the government’s `Future Homes and Buildings Standard 2025’ objectives include ensuring that homes built from 2025 will cut carbon emissions by 75% to 80% compared to homes built previously. Homes with green technology may well command a higher price than those with low Energy Performance Certificate ratings.

Final thoughts – is a UK house price crash coming?

While there’s general agreement that activity levels are slowing and a return to more `normal’ conditions is expected, professionals differ widely in their opinions of how far prices will fall.

However, big price drops are considered unlikely due to the limited supply of housing and as ever, prices of houses in desirable locations are likely to remain stable.

The market looks to be split between those who have to move, and those who are in a position to wait for the right house at what they believe to be the right price. With sellers currently reluctant to drop their asking prices, the market appears set for a time of general stagnation over the coming months.

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