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Rising mortgage costs and a wider cost of living crisis will reduce house prices by around 8% next year, according to forecasts from lender Halifax.
Halifax, which recorded its biggest monthly fall in house prices in 14 years in November, said the market was now rebalancing after years of conditions that resulted in the largest ever increase in house prices.
The coronavirus pandemic also fueled a mini-housing boom as flexible and home-based work led to increased sales of larger properties in more rural and scenic settings.
“With such rapid house price growth and growing economic activity, a recession was almost inevitable,” said Halifax Home Director Andrew Assam. “As the rising cost of living puts more pressure on household finances and rising interest rates affect consumers’ monthly mortgage payments, there is understandably more caution among both buyers and sellers, which has seen demand soften as people stock up.”
On Thursday, the Bank of England raised interest rates to 3.5%, the highest level in 14 years and the ninth consecutive increase a day after the annual inflation rate fell slightly to 10.7%. Unemployment is also expected to rise to around 5.5%.
Halifax said the average UK house price rose by £55,000, almost 23%, to a record high of £293,992 between the start of the pandemic in March 2020 and August this year.
The bank said the 8% drop forecast for next year is the same as the average UK house price in April last year, meaning homeowners will not see all their pandemic gains wiped out.
“There is still uncertainty around this forecast,” Assam said. “The housing market will continue to rebalance to reflect these new standards. While inflation may be at or near its peak overall, household energy bills are likely to rise again, putting further pressure on household budgets.”
The average house price in the UK is currently £285,579, up £12,000 on a year ago. As recently as June, home prices were up 12.5% annually, the strongest rate of annual growth since 2005.
Last month, property portal Zoopla predicted that UK house prices would fall by around 5% next year.
“We expect 2023 to be characterized by a slower property market during which around 25% fewer properties come on the market and change hands than in a ‘normal’ year,” said Sebastian Verity, head of research at estate agents Chestertons.
“The government is actively working with mortgage lenders to avoid additional stress on borrowers so we believe the number of forced sales will be relatively low and that the lack of supply, combined with strong underlying demand for homes, will buffer the market from any drama. The price goes down.”
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