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The UK Housing Market: 2023 Predictions

posted: 30/12/2022

uk mortgageAs 2023 draws closer, the real estate industry encounters more and more challenges.

The cost of living crisis continues, the mortgage rates have increased to levels – unthinkable a year ago, and many people believe that home values will decline in the coming year.

Because the average home costs almost nine times the average yearly salary in the UK, this may not necessarily be a bad thing.

Nonetheless, it will be worrying for homeowners whose homes’ values increased significantly during the recent housing bubble to watch their gains perhaps disappear.

The most recent data suggests that monthly price declines in housing may have already started.

According to Halifax’s index, the average home price dropped by 2.3% in November, the biggest monthly drop since 2008. Compared to the previous month, when prices fell by 0.4%, it indicated an acceleration.

However, other indexes forecast smaller declines or even slight increases. Predictions for 2023 are even more inconsistent, with yearly price declines ranging from 5% to more than 20%.

Decline in House Prices – High Mortgage Rates

Mortgage rates are responsible for a large portion of the recent adjustment in the trend of home prices.

According to Moneyfacts, the average interest rate for a two-year fixed mortgage is 5.80%, and for a five-year fixed – 5.61%. They were 2.34% and 2.64%, respectively, at the same time last year.

As a result, a typical buyer needing a mortgage of $250,000 and fixing for two years with a 25-year term will now have to pay £1,580 per month as opposed to £1,102 last year. It is a cost increase of 43% and an additional £5,736 in annual expenses.

This combines with the fact that, over the past 25, the gap between house price rises and wage increases has grown ever wider.

According to the ONS, home affordability has gotten worse since 1997 as a result of an increase in house prices in England and Wales from 3.5 times the average earnings to 9.1 times.

It was accelerated by the global housing boom, which resulted in a dramatic increase in the house price-to-income ratio from 7.9 times salary in 2020 to its current level.

House Moving on Hold?

Early indications reveal that more Brits are delaying their intentions to buy a home or move due to these rising mortgage rates and broader economic uncertainties.

According to the most recent data from the Bank of England, mortgage approvals for home purchases decreased by more than 10% in October to 59,000. It was a 20% decrease from the 74,400 mortgage approvals registered in August 2022.

house removals on holdAccording to property marketplace Zoopla, demand for properties has decreased by 50% year-over-year as purchasers wait to see what the market will hold in January and early 2023. Additionally, there have been 28% fewer sales agreements year over year.

As a result, many sellers are being forced to accept larger discounts. Zoopla experts say that original asking prices were reduced by an average of 4% last month to make a deal.

Given all this doom and gloom, it may not be a surprise that most forecasts show a decline in housing prices, with the Office for Budget Responsibility, the government’s official forecaster, anticipating a 9% decline.

The predictions made by the other housing price indices are accurate.

It’s important to note that, in contrast to the other end-of-year projections we’ve mentioned, Hamptons releases its prognosis every September. In the interim, a lot has happened this year.

It refused to change its prognosis at this time, stating that although there is a greater likelihood that prices will decline than when it originally predicted, it does not yet see that as inevitable.

Despite all of this, the house moving industry stays hopeful for its future, as people continue to relocate domestically and internationally at a steady pace.

How Reliable Are Forecasts of Housing Values?

Although arguably, estimates of property prices affect public opinion, forecasts should always be treated with caution.

Following the Covid-19 epidemic, several influential organisations, including the Bank of England, Savills, and Knight Frank, anticipated that home prices will decline in 2020.

When the real estate market, not to mention the entire nation, effectively collapsed, it appeared like the only rational course of action.

These forecasts, however, did not account for the length of the furlough or the stamp duty break. They also failed to anticipate the increased significance and value that people would attach to their homes as they began to spend practically all of their time there.

In actuality, the ONS reports that prices rose by 8.5% in 2020.

Many may contend that the 40-year high inflation rate and the highest mortgage rates in more than ten years make this time distinct from previous ones.

The real estate market, however, can defy all predictions, and we never know when economic circumstances may shift, as we have seen in the past.

The new normal may very well be higher interest rates. But it’s not a given.

It’s also feasible that inflation will decline the following year, mortgage rates will drop, or our worries about a recession and increased unemployment won’t come true.

In the end, no one can foretell the future, so trying to time the market based on expected house price growth is a bad idea.

Buy or Sell a Property in 2023?

It’s important to note that mortgage rates have been declining since they reached their peak in October, even though they are still significantly higher than they were in the past.

buy or sell propertyThe top five-year fixes currently average just under 4.5%, down from between around 2% and 2.5% a year ago.

Although sellers may have to concede that purchasers in 2023 will simply be unable to afford the prices they are asking for their homes today, the flip side of that is that their own new home should also be less expensive.

Nathan Emerson, chief executive of the membership organisation for real estate brokers Propertymark, says that a gradual transition back to a more realistic and sustainable market has already started to appear with the average house price starting to reduce, and we should expect this softening to continue into 2023.

But when you look closer, price declines of this nature are not as frightening as they would first appear. Despite a decline, home prices are still between 19 and 20 per cent higher than they were in March 2020.

This means that even though a further 10% decline is anticipated for next year, the majority of homeowners will still have seen a 10% increase in the value of their homes since before the pandemic. To purchase and sell, it is still a good time.

We stay hopeful that the UK housing market will finally stabilise a bit, and with it, the costs of living and mortgage rates will also decrease.


Stephanie Cooper

Stephanie is a content marketing specialist for Top Removals for the past several years. She has extensive experience working with moving companies and knows her audience. Stephanie creates engaging and useful content helping the customers of Top Removals with their struggles and providing them with the most accurate insight.

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