Experts predict housing market to cool in 2023 as UK enters recession | housing market | Daily News Byte

The housing market will cool sharply next year after a boom in 2022, industry experts are predicting, as the UK contends with recession and higher mortgage rates.

As the cost of living has intensified amid rising inflation and rising interest rates, house prices have started falling month-on-month. Average house prices fell 2.3% from October to November – the most since the start of the financial crash in 2008, according to Halifax.

The recession is expected to deepen, with all housing indicators flashing red as rates are set to rise and the UK enters a long recession.

The Bank of England is expected to continue raising interest rates from 3.5% to a peak of around 4.75% in 2023, further dampening buyer demand.

Property experts say this is likely to result in property prices falling between 5% and 12% next year, although some warn that in a worst-case scenario, they could collapse by 15% to 20%. The latest data from the Office for National Statistics shows that house prices rose by 12.6% in the year to October.

Kwasi Kwarteng’s disastrous mini-budget in September sent mortgage rates above 6%, the level last seen in 2008. Mortgage rates have bounced back, with an average five-year fix at 5.6%, according to MoneyFacts, but are still very high. A year ago.

British banks and building societies expect to lend 23% less to home buyers next year, taking mortgage volumes to their pre-pandemic levels – and ending a two-year boom that saw house prices rise by more than a quarter.

Trade body UK Finance predicted gross mortgage lending for home purchases would fall to £131bn this year from £171bn and peak at £189bn in 2021, after the stamp duty holiday boosted the market. Property sales are set to fall from 1.27m in 2022 to 1.01m next year.

Property firm Savills is predicting an even sharper fall in transactions, to 870,000 and a 10% fall in house prices in 2023, as is buying agent Henry Prior. “A slide, not a crash,” he said. “The housing market is like a supertanker; It takes ages to turn, change direction or change speed.”

Real estate firm Jones Lang LaSalle has forecast house prices to fall by 6% next year, arguing that the UK has rarely seen house price falls. Both he and Savills expect price growth to recover to 1% in 2024, as interest rates fall back and inflation is contained.

Robert Gardner, Nationwide’s chief economist, expects a “modest decline” in house prices next year. “There is good reason to believe we can still achieve a soft landing.” He said that while the unemployment rate is likely to rise to around 5% from 3.7% now, it will still be low by historical standards, and that may be partly due to people who are currently “inactive” rejoining the job market. have been A living squeeze, rather than a massive layoff.

Gardner noted that about 85% of mortgage balances are at fixed interest rates, and said that homeowners who have to refinance in the near term have also tested affordability at higher interest rates. “It’s going to be really tough but most people should be able to cope.”

The Bank of England has warned that four million households will face higher mortgage payments next year, with the typical payment rising from £250 to £1,000 a month. This will create severe financial hardship for 220,000 families.

Capital Economics’ central forecast is for house prices to fall by up to 12% by the end of 2023, but Andrew Wishart, senior economist at the consultancy, said prices could fall by up to 20% in a worst-case scenario. “The initial decline in house prices was sharper than during the financial crisis or the early 90s.

“For affordability to return to sustainable levels by the end of 2023, when we think mortgage rates will still be around 5%, the average house price would have to fall by 20%. On the other hand, market and mortgage interest rates will fall faster than we expect, which will limit the decline in prices.”

The picture is different in the private rental market, where rental prices have reached record levels amid a shortage of properties to rent and rising demand, partly as some first-time buyers continue to rent in the hope of lower mortgage rates. Next year. Official figures show that UK private rents rose by 4% in November, the highest since records began in 2016.

Wishart believes rent growth over the next five years will be roughly double the average experienced in the pre-pandemic decade, peaking at 5.1% next year. Savills sees rent growth rising to more than 6.5% in 2024 before slowing to 4%.