The housing market in 2023

The price of your home is probably a key element in your personal wealth. Most of us would wish that it is on a steady upward trajectory, and in general those wishes have been granted, especially in recent years.

According to industry experts, the property market continued to see robust growth and a consistent level of activity throughout most of 2022. The latest sold price data from the Land Registry showing that house prices currently remain 9.5% higher than they were last year. 

But the times are changing, and continuing house price inflation is not guaranteed – in fact, the latest house price index from Halifax has shown that house prices fell by 2.3% between November and December.

This could be the first signs that the market is starting to cool as increased mortgage rates make further increases unaffordable.

At Continuum we are looking at what to expect from the housing market in 2023.

Buying a home has become more expensive

House prices have rocketed by up to 20% in some areas of the UK since 2019 – with the biggest increases seen in the South-East and South-West of England, according to Rightmove. The race for space as Covid struck, and the low interest rates that followed saw more people able to pay much more for desirable homes – many of which were away from the traditional commuter hot spots.

The southwest has seen the biggest rise in house prices, up a massive 20% from £294,000 in 2019 to £353,852 over the past year, according to Rightmove.

The southeast was close behind, with the £478,188 average house price up 18% from the 2019 level of £403,980.

Even the northeast saw a 7% increase in house prices, from £169,894 to £180,984 since 2019.

But that is changing fast, as interest rates rise and more conventional buying habits may be reasserting themselves.

The simple fact is that whatever happens to house prices, increased mortgage costs now make buying a home much more expensive.

How higher rates impact the market

High mortgage rates affect the housing market in two ways.

All buyers will find their monthly repayments are far larger. At a time when there is already pressure on household budgets, this leads to borrowing smaller amounts.

New buyers find the amount that they can borrow is reduced. A jump in mortgage rates from 2% to 6% could cut loan size by 35%, according to property website Zoopla. Many will fail lenders’ affordability checks, based on their standard variable rate plus at least one percentage point – and be unable to borrow at all.

Both factors mean that the price of homes will need to fall.

So what happens now?

The big question is of course if increased mortgage costs cause house prices to fall, by how much?

Predictions from the Office of Budget Responsibility have now suggested average prices across the UK will fall £26,550 over 2023 and on into 2024.

They suggest a 9% drop by the third quarter of 2024, driven by higher mortgage rates as well as the wider economic downturn’.

That would wipe out price increases your home may have enjoyed over the last 12 months, but it is hardly the property price Armageddon that some doomsayers were predicting.

But the 9% figure is a national average. Just as house prices went up at different rates across the country, the regions may fall at different rates.

It could be that the areas that saw the fastest growth during the pandemic, predominantly cities outside of London, are the ones that are hit the most. A desirable home in a good location may hold its value, while the continued imbalance between supply and demand should help prevent disastrous falls.

What can you do?

With TSB and Nationwide both cutting interest rates across their fixed mortgages, getting expert help to secure the loan deal you need requires an expert.

A call to us at Continuum could provide the expertise you need.

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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