Skip to content

Are House Prices In The UK Set To Fall?

A spike price of mortgage loans could cause the UK property market to plummet as a result of the biggest monthly decline in house prices since 2008.

The market has been overheated, and house prices are experiencing an annual increase of more than 10% during the epidemic. Prices for homes fell toward in 2022’s final year, however, the asking price surpassed predictions in the month of January, rising 0.9 percent according to the property site Rightmove.

Why are UK house costs so high?

Prices of homes are falling since their record-breaking heights in the pandemic (more about this later). But, they remain very high by historical standards and have been rising much more quickly than wages.

The price of an average UK house has almost tripled since the beginning century. The cost of homes has been rising by more than 60% in the past 10 years, as per Nationwide construction society.

At first glance, it looks as if the major reason has been supply and demand: there is a shortage of housing and a high demand for property.

While this is definitely an aspect that low interest rates had actually been driving the housing market since the beginning of the pandemic. The ability to borrow cheaply can make it easier for individuals to pay for mortgages.

Since December 2021, in the Bank of England has increased the base rate nine times from the record low of 0.1 percent. The base rate of interest currently sits at 3.5 percent.

This has happened in response to the soaring inflation rate which reached 10.7 percent in the year up to November.

Increased mortgage rates have led to a higher cost to buy a home and the market for housing is beginning to take the brunt of this, with prices decreasing for four months consecutive months.

The next rate hike is expected in 2023, which could significantly dampen the housing market since the mortgage payment will increase.

The crisis of cost of living is expected to be the primary reason for a slowdown of the market for housing. As budgets of households come in a state of stress, fewer can afford to purchase homes.

It is believed that some first-time buyers will be cautious while they wait to see what happens. This could influence the market.

Are house prices down?

House prices show that prices are slowing down and even reversing. This is due to the fact that demand from buyers has starts to wane as living costs increase.

The property website Zoopla reported that demand for housing had slowed by 50% in the period from December 2022 to.

Below we provide the home cost figures of two major lenders.

Halifax House price index

The most recent figures from Halifax, the biggest UK mortgage provider, showed a 1.5 percentage decrease in prices in December. This is the fourth month of dips in a row. It also puts the average UK house price at PS281,272.

Prior to that , the price of homes had dropped 2.3% in November. This was the highest decline since 2008’s financial crisis.

In the meantime, the annual growth rate decreased from 4.6% to just 2%, a huge decrease from June’s record of 12.5 percent.

The lender – the largest mortgage provider in the United Kingdom – has said it would be foolish to rule out significant annual price decreases in the next few months.

Inflation and uncertainty as to how much price increases for living will influence household bills are an impact on the market.

Average two-year fixed mortgage interest rate climbed to 6.55% in October. However, it has now cooled to under 6percent. This article provides more information on average mortgage rate and the way they have changed.

This has led to households spending the largest portion of their income for mortgage payments since 1989 at times when the rate of inflation is close to a high of 40 years.

Nationwide house price index

The price of houses increased by 2.8 percent during the year until December, a drop from a growth rate of 4.4%, according to Nationwide Building Society.

The report also marks an 0.1 percentage monthly drop in house prices, the fourth monthly decrease consecutively. Prices for homes are now at PS262,068.

As of the month November Nationwide reported a 1.4 percent drop. This was the highest since June 2020, at the peak of the Covid pandemic.

“The market has definitely been affected by the chaos that occurred following the mini-budget, leading to a dramatic increase in market interest rates.” declared Robert Gardner, Nationwide’s chief economist.

“Higher cost of borrowing have contributed to stretched housing affordability during a time when households’ finances are already under pressure due to high inflation.”

The mortgage rate shift is a result of a higher base rate of interest currently at 3.5 percent – that is set by the Bank of England as part of its attempt to control the rising inflation rate, which is mainly due to the aftermath of the Russian war in Ukraine.

However, it also pointed to factors supporting prices including the shortage of new houses, a strong increase in wages, and cuts to stamp duty as revealed in the government’s mini-budget.

Are there regional differences in the prices of houses?

There are a number of regional variations in the prices of homes as well as areas that are experiencing distinct levels of growth.

However, all nations and regions saw an increase in the annual cost of housing in 2022. However, the rate of growth has slowed.

Nationally, we compared average prices for houses from October through December the same period in 2021:

East Anglia was the strongest performing region in England and the average price rising by 6.6 percent compared to the same three months in 2021.
Scotland was the poorest-performing region, with house prices rising by 3.3 percent
Wales experienced a notable slowdown in growth, slowing to 4.5% from 12.1 percent in the preceding three months
Northern Ireland saw prices increase by 5.5 percent, a lot less than the 12.1 per cent increase that was recorded in the last three months of 2021.
Price growth for houses was second slowest in London. But prices in the capital remain among the highest in the UK at PS528,000. This is almost twice the UK average

How are prices different for different types of property?

The pandemic caused huge changes in home preferences, and mortgage lenders continue to observe differences in pricing patterns between different kinds of properties.

Since the outbreak of the pandemic of detached, family homes have increased significantly faster than flats.

Many employees continue to work from their homes a handful of times per week, which means there is a need for larger houses with room for a work space at home. As this hybrid approach to working is continuing, so will the trend toward larger houses.

Figures taken from Nationwide Building Society show that the cost of

A detached home has increased by 26% or around PS78,000 in cash terms, between the years 2020 and 2022. For 2022 only detached properties, detached homes increased by 5.9%
Flats increased by 13.4 percent on average, which is equivalent to PS23,000 between 2020 between 2020 and 2022. In 2022 alone, the average price for flats increased by 2.1%

Figures provided by Statistics from Office for National Statistics show a slightly different trend, with terraced and semi-detached homes growing in price the fastest. From October to 2022, data from the Office for National Statistics show that the median price of:

Detached houses reached PS468,376, which is up 12% over the year
Semi-detached homes cost PS287,383, an increase of 14%
Terraced houses hit PS242,690, an increase of 14%.
Flats reached PS235,237, with an uptick of 8.6 percent

Is there a greater demand for rural locations?

With working from home likely to be a longer-lasting aspect of the lives of many and the need for property outside cities has jumped.

Lockdowns underscored the value of space and greenery prompting a surge in interest in homes in coastal and rural regions, according to ONS data.

House prices in some hotspots have risen at three times the national average. This includes places such as:

Conwy located in North Wales
North Devon
Richmondshire is located in the Yorkshire Dales

Estate agents have reported a high level of interest in rural and remote property in Scotland.

As a result, some individuals have begun to return to commuter belts and cities which has raised the price of houses in these regions.

Are house prices set to plummet in 2023?

Although we aren’t able to say for sure what the future holds for us, recent rises on the UK base interest rate have led to fears that the market could crash.

Following the controversial mini-budget of September the mortgage industry saw a number of lenders withdraw deals and increased rates, which pushed up the costs of mortgages across the board.

Since the Bank of England has raised the interest rate at base to 3.5 percent, these effects will likely be amplified. It is anticipated that this will reduce demand among potential buyers and lead to house prices to fall.

There are additional factors that could dampen the rapid growth that has been seen in recent years, specifically the cost of living crisis. Prices for petrol and the rising cost of energy, inflation and tax rises mean most households are left with less money to spend on buying homes.

Although the annual rate of house price growth is still high across the board, house prices are sagging month on month. If the demand slows and the people who have deposits are smaller then the rate of rising house prices could drop further.

However, that doesn’t mean property prices will go down because demand continues to exceed supply in many areas across the UK.

In actual fact, the portal for property Rightmove reported a 0.9% uplift of asking prices in January, which is the largest increase in the same time of the year since January 2020. Mortgage rates are declining so buyers are coming back in the housing market.

Demand will likely cushion the blow, meaning home prices may fall instead of crashing.

House price predictions

Due to the continuing competition for space, many projections on the market for housing remain positive. But the perfect storm of high inflation and rates of interest is likely to reduce the market for housing.

Here are some forecasts of what’s to come:

The month of January, 2023 Halifax predicted that house prices would decline by about 8percent over the course of the course of the year. The Halifax forecast said that a decline of 8% would result in the cost of the average house returning to April 2021 levels which are still higher than pre-pandemic levels.
In December 2022 Robert Gardner from Nationwide said that house prices could be experiencing a slight decline by 2023 of about 5 percent. The economist said that there will need to be a substantial decline of the labour market in order to generate the double-digit falls that have been suggested by some forecasters
Lloyds Bank has forecast house prices to drop by 8.8% by 2023. The bank has set an aside PS668 million to pay for bad debtthat could result from borrowers struggling to pay their debts
The Office for Budget Responsibility has projected that prices will fall by 9% between 2022-2024, before starting to rise again through 2025.
In November 2022, the property website Zoopla stated that it was expecting prices to decline by 5% by 2023.
The Bank of England has predicted house price growth to be slower later in this year, and mortgage lenders likely to reduce lending as the economy struggles
In July 2022 Wesley Davidson, founder of mortgage broker Fox Davidson, said he thought the average UK home price would fall around 10% within 12 months.

Inflation is high and has caused the interest rates to increase and this is set to continue, slowing the decline in the housing market.

The asking price increased 0.9% in January 2023. This brought the average price to PS362,438, according to property website Rightmove. However, the demand from home buyers is down 36% in comparison to January last year.

Zoopla’s house price index found that sellers were pressured to reduce their asking price by approximately 4% to achieve the point of selling over the last few weeks. Surveyors also report fewer inquiries from potential buyers.

All of this will have a knock-on effect on the prices that houses are offered for sale, as a lower demand means that more buyers are able to bargain over the price of homes.

The slowdown so far is not dramatic, however it is possible that it will pick up the pace swiftly as the interest rates continue to rise.

The good news is that home buyers can save cash on taxes with the reduction in stamp duty rates.