House price projections through the remainder of 2023 and beyond

2023 has been a tough year for the property market so far, in the main due to increases in interest rates, and the knock on effect this has had on mortgage deals.

The reality is that homeowners are anxious about the current high mortgage rates, and as importantly, whether the value of their homes are likely to drop in 2023 after the post-COVID boom.

Are property prices going to fall in 2023?

Resolution Foundation, a think tank, suggest that if interest rates remain high for the long term, then property prices could fall by as much as 25% over the next 5 years – which is a very gloomy projection for homeowners (though not so much for first time buyers at the lower end of the market).

Zoopla however have a more conservative suggestion of a 5% reduction over the course of 2023, based on the fall in demand by 18% in the 2 months to July this year.

Lenders have suggested a fall in property prices is likely, though Nationwide Building Society have displayed only a very slight fall in July, although in the full year up to July they have published figures showing prices had fallen by 3.8%.

The general consensus from the banks is that house prices are now falling. In line with Nationwide, the Halifax house price index showed prices fell 2.4% to July this year.

Despite the figures showing a fall in 2023, house prices are still very high by historical standards, rising much faster than wages with the average price of a UK home having nearly trebled since the millennium. More recently, prices have increased by 60% over the last decade.

This historical boom is generally agreed to have been caused by supply and demand – there simply haven’t been enough houses to sell to buyers, fuelled by low interest rates for mortgages, allowing buyers to borrow more to purchase the houses that are available at the higher price point on offer.

Clearly, the interest rate increase has upset this system, and since December 2021 the Bank of England has made 14 increases to its base rate’s record low of 0.1% (It’s at 5.25% at the time of writing), which in turn has been to combat string inflation which hit 7.9% this June for the year.

In addition to these factors, first time buyers are hesitant to purchase, preferring instead to wait to see how the market pans out, further impacting the decline.

Are house prices projected to decline further through 2023 and beyond?

Well, the availability of housing stock in the UK is still critical, so it may be that any change will be less impactful than it could be in another situation. The high inflation and interest rates, are also very likely to continue to impact any immediate recovery.

In March, the Office for Budget Responsibility predicted that house prices would fall 10% over the next two years, after Halifax had predicted that the drop would be closer to 8% over the same timeframe (NB – Halifax and Lloyds are part of the same group so would expect them to say the same thing). In summary, high inflation has caused interest rates to rise and this is set to continue, even if mortgage lenders are becoming more competitive with their published consumer rates. This in turn is slowing the housing market down, which will inevitably have an effect on the housing market for the remainder of 2023. Reduced demand means negotiations by buyers will increase, and therefore agreed sale prices may be lower.

If interest rates settle, the decline may be modest, but if they do continue to rise, we could see prices fall more drastically over the coming 12-24 months.

If you have any questions about the information provided here, or would like to discuss your conveyancing or remortgage options then please get in touch.

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