Housing market – crash or business as usual? 

We might not intend to become property investors. Most of us simply wanted to buy a home of our own. But low mortgage rates and growing prices have meant that those who bought a few years ago are sitting on – or rather in – a very rewarding investment.

So like it or not, we are invested in the property market. And all financial markets go down as well as up. There are worries that the housing market, and house prices are both going to crash.

At Continuum we are looking at the figures, rather than the hysterical headlines.

What is really happening?

The problem is of course the interest rates which effectively control the market.

In the early months of 2023, some mortgage rates actually fell a little as the panic at the end of last year abated.

But is the cautious optimism that boosted sales and led to year-on-year price increases set to reverse?

Mortgage rates are now averaging between 5%-7% compared to below 4.5% in Spring.

As the Bank of England struggles to dampen down the economy to deal with stubbornly high inflation, financial markets and lenders are now looking at interest rates going higher still. 

But the market is not panicked. There are early signs of the usual seasonal decline in demand, which is likely to expand over the summer, but overall sales volumes are close to the average over the last 5 years.

The housing market is open for business, and homes are selling. But what about prices?

Where are house prices headed?

The rocketing prices of the past few years are over.  In fact, the latest figures from the Nationwide show that all parts of the UK except Northern Ireland are seeing some falls.

But these are relatively small and may represent corrections to overly ambitious asking prices.  After taking account of seasonal effects prices actually rose by a modest 0.1%, in June, reversing a 0.1% decline seen in May.

This means that annual house price change is broadly stable with a fall of 3.5% in June, little changed from the 3.4% decline recorded in May.

There are regional variations. London saw a 4.3% year-on-year decline, while across northern England overall, which covers North, North West, Yorkshire & The Humber, East Midlands and West Midlands, prices were down 2.7% compared with the same time last year.

But is this just a gentle deflation, or the beginning of a crash?

What happens now?

One problem may be the sheer number of fixed deals that are coming up for renewal in the next couple of years. The Office for National Statistics says 57% of UK fixed-rate mortgages were fixed below 2%. The current market is seeing deals around 6%. This will see something in the region of two million households faced with mortgage interest repayments at least double what they were when the original deal was taken out. Some of those who had fixed their mortgages when rates were at their lowest are not going to be able to meet those repayments. 

For those coming off two-year fixed rate deals, with mortgage rates of 6%, a new two-year deal equates to an increase of £385 per month for a typical borrower.

Nationwide House Price Index

If the market was flooded with forced sales it would certainly drive down prices. But the government’s Mortgage Charter initiative could help prevent mortgages becoming unaffordable – as could the fact that all mortgage borrowers have been subject to stress testing – ensuring that their mortgage would still be affordable even when rates increase.

In fact, the market could regulate itself. A crash – a fall of 20% or more in house prices – could be avoided, thanks to ongoing demand. Modest quarterly price falls are more likely as higher mortgage rates hit buying power.  But as a result, a combination of healthy rates of income growth and modest declines in price should actually increase affordability and hence demand.

UK house prices remain on track to fall by up to 5% over 2023 – which would still leave them above pre-pandemic prices.

What should you do?

If the housing market is to become a buyers’ market it could mean the chance to secure the home you want sooner rather than later. It might be tempting to hold off for a better deal in a few months’ time, but anyone with a mortgage arranged and ready to buy could be in a good position to drive harder bargains now.

Alternatively, if you are planning to stay where you are, you may want to look at getting the very best deal to buy the home you already have.

The one thing you can be certain of is that having a discussion with a Continuum mortgage expert could help you make the most of the housing market now.

Why not call us today?

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.

Your home may be repossessed if you do not keep up repayments on your mortgage. 

House prices relatively stable in June but annual growth remains in negative territory (nationwidehousepriceindex.co.uk)



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