Is there any good news on house prices?

Anxious houseowners, investors and would-be buyers have been asking what is going to happen to house prices since the pandemic.

Back then some experts were predicting major falls. Not only did those falls never materialise but this may show that experts are just as in the dark as the rest of us – but some are still prepared to make dramatic predictions.

What are they saying? With the current steady rise in interest rates putting a decisive end to the historic low cost mortgages that fuelled house price inflation, some pundits are again suggesting that falls are on the cards.

More conservative commentators, from the leading building societies still believe that falls of between 5% to 8% may be in order as buyers realise they can no longer afford inflated house prices or growing mortgage repayments. Lloyds expects house prices to fall 8% this year, while Nationwide and Halifax expect them to drop 5%.

This would mean that houses could still be worth more than they were a year ago.

So the first piece of good news is that if you are a houseowner your home may still look like a good investment.

What is really happening in the house market?

But perhaps we should look at actual figures rather than predictions.

The latest data from online estate agent Zoopla shows house price growth ground to a standstill in the final quarter of 2022 as higher borrowing costs made prospective home buyers owners ask themselves if it was a good time to buy.

Many were deterred from commitment by the mini-Budget, after which the Bank of England began to increase interest rates. According to Zoopla there was a 50% drop in buyer demand.

Reduced demand is usually accompanied by reduction in prices. Most house price indices have recorded falls. According to Halifax house prices fell for four months straight to January, while the Nationwide also recorded four months of price falls, resulting in annual house price growth falling from 4.4% in November to 2.8% in December. 

House prices are now on their worst streak since the financial crisis. Prices slumped 0.6% in January  – but this still leaves annual house price growth at 1.1%

These falls may come as a shock to anyone who convinced themselves that house prices would only ever go up, but remember although the last few months have seen a fall back, annual price changes still appear to be positive.

What’s next for house prices?

The start of 2023 may remain slow with people waiting to see whether house prices start to fall further and what will happen with mortgage rates.

In fact there is hope mortgage rates will continue to fall throughout the year. In September two- and five-year mortgage rates had gone over 6%. They have since fallen back, with the average deals sitting at around 5%, a figure which at Continuum we can often find lenders to beat.

The second piece of good news is that mortgages are already lower than their peak, meaning that house prices could be more affordable.

As for house prices themselves, a lot will depend on the economy. Fears of a recession remain – although its seems that a technical recession has been avoided for now, and a booming FTSE and thriving jobs market might suggest that doomsayers are wrong once again.

However, it is hard to avoid the fact that household incomes are under pressure from double-digit inflation. And though the rate of inflation has fallen as the Bank of England base rate has risen, it remains far higher than the BoE’s target of 2%. 

There could still be some falls in house prices.

The third piece of good news is that any house price correction could put homes back in the reach of first-time buyers – if they take advantage of falling mortgage costs.  

The best news of all?

If you are looking for a new home, you will need to bargain, and to ensure that you have the most cost-effective mortgage in place.

The really good news is that with a call to Continuum you can have our experts searching the market for the deal that is suitable for you.

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.

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