Will house prices drop in 2023?

Zoopla says all the leading supply and demand indicators it measures 'continue to point to a rapid slowdown from very strong market conditions. We do not see any evidence of forced sales or the need for a large, double digit reset in UK house prices in 2023. We still expect house price falls of up to 5% in 2023.

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House price forecast: What will happen to the housing market in 2023

After the economic turbulence of 2022 you may be wondering about the house price forecast for 2023. We look at what's in store for the housing market in 2023. When it comes to making a house price forecast, no one really knows what will happen. That said, there are numerous factors we can take into account and experts we can ask to help make an educated guess, and in turn inform your decisions for your home – whether you’re selling, buying or staying put. Read on for our house price forecast for 2023 and what it might mean for you.

What’s happening with house prices now?

Despite the economic uncertainty in 2022 house prices had remained firm for much of the year. However, Nationwide’s House Price Index shows this changed as the year wore on. Its figures show average UK house prices in December fell for the fourth month in a row, the longest run since 2008. And the average price of a home fell to £262,068, down from £272,259 in September.

Will house prices drop in 2023?

So will house prices drop in 2023? Yes it looks likely. But by how much?

The September Mini Budget prompted a house price forecast of a drop by a whopping 20%. But housing market predictions in the UK have become less dramatic since: Lloyds Bank has forecast house prices to fall by 8% in 2023 and has set aside £668m to cover ‘bad debt’, which could arise if borrowers have difficulty making repayments due to increased mortgage costs. Zoopla says all the leading supply and demand indicators it measures ‘continue to point to a rapid slowdown from very strong market conditions. We do not see any evidence of forced sales or the need for a large, double digit reset in UK house prices in 2023. We still expect house price falls of up to 5% in 2023.’ Rising mortgage costs and the cost of living crisis will push house prices down by about 8% in 2023, according to a forecast by Halifax. Property consultancy company JLL has forecast house prices in the UK will drop by 6% in 2023. While housing expert and buying agent Henry Pryor says he expects house prices to slip slowly through the year ending 2023 down by around 10%.

Should we expect the housing market to crash?

HomeOwners Alliance CEO Paula Higgins says, ‘It’s understandable that people get nervous when they hear predictions of a house price “crash” being bandied about. It’s too hard to predict whether there will be a “crash” where prices plummet; we must remember it didn’t happen with Brexit, it didn’t happen with the pandemic and we still have a fundamental shortage of housing. ‘Considering the difficult factors homeowners face, from increased mortgage costs and the cost of living crisis, it seems sensible to assume house prices will drop further next year. But after so many years of house price inflation, we think this is more likely to be a correction than a crash.’ “A house price crash didn’t happen with Brexit, it didn’t happen with the pandemic and we still have a fundamental shortage of housing.” Paula adds, ‘A greater concern to most homeowners will be the increase in mortgage costs many are facing, especially coupled with rising living costs. However the affordability tests when taking out a mortgage that were introduced after the 2008 financial crash means people should be better placed to cope with the increased costs than they would have been otherwise. But we would encourage homeowners to frequently check they’re on the best mortgage rate. With the current cost of living crisis and the rate at which deals are changing, using a fee-free mortgage broker to do the hard work for you is a no-brainer.’

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Housing experts’ house price forecasts for 2023

Prices will drop around 10% but no crash in sight

Housing expert and buying agent Henry Pryor says, ‘I expect house prices to slip slowly through the year ending 2023 down by around 10%. Like a supertanker the housing market always takes longer to change direction than one thinks. I don’t expect a crash as we don’t have a trigger event such as widespread repossessions – I don’t expect a significant number of homes being put up for sale to cause prices to plummet. There will be some who find themselves over-leveraged and unable to afford higher interest rates but I expect this to be a relatively small number. ‘Transaction volumes however will shrink from the 1.2m that we expect to end 2022 with when we count them all up and the 1.5m in 2021, due in very large part to the Stamp Duty Holiday. In 2023 we may see only 750,000 homes sell as buyers wait for the crash that doesn’t come and sellers lack the incentive to move. ‘Rents will continue to rise, in some places by 10% or more, as stock levels remain subdued and demand remains strong. Some buy-to-let landlords will give up having got their sums wrong and being unable to service their funding directly by raising rents but most will stay. Changes to legislation will also provoke some landlords to sell up.

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‘2023 may not be as exciting politically but the housing market will still present many challenges for those looking to buy and sell, to let and rent but I’m not expecting a crash or for housing to be any less a popular topic of conversation in pubs and around dinner tables up and down the land.’

No signs of a major correction yet

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: ‘Never was the “confidence takes a long time to build but can disappear almost immediately” saying so true for the property market at the end of September! The mini budget frightened the life out of nearly all our buyers who were dependent on mortgages. ‘Despite the Bank of England raising the base rate at the beginning of November by 0.75% to 3% – the largest uplift since 1989 – mortgage rates are starting to fall so many buyers are slowly emerging from the shadows ‘On the ground, we noticed prospective new entrants paused for breath to consider the size and timing of future interest rate hikes while trying to come to terms with the cost of living too. ‘We’re told more borrowers have higher loan-to-value mortgage debt than in the 2008 financial crisis although cautious lending in the last few years has meant the overwhelming majority of sales are holding together. ‘We’re certainly not seeing signs of a major correction yet which would probably only be prompted by multiple lender repossessions and/or forced sales. Some commentators are suggesting prices might drop by about 10% in 2023 i.e. to levels roughly prevailing in the summer of last year but continuing to be underpinned by the ongoing shortage of stock and very low unemployment. ‘What we have also seen are tough negotiations between more realistic buyers and sellers often trying to take advantage of existing mortgage offers before they rise even higher!’

Holding off buying could mean being hit by higher mortgage rates

Property market analyst and CEO of Twindig, Anthony Codling, says, ‘Housing transactions nudged up in October as faith in the housing market seems to be much firmer than our faith in our politicians at the moment. ‘However, we do expect the housing market headwinds to get stronger, but that does not mean that housing transactions should fall off a cliff. Mortgage rates are rising and are likely to rise significantly in the coming months, for many the impact of rising mortgage rates will outweigh the impact of falling house prices. ‘You may well be better off completing today at a higher price than tomorrow with a lower price but a higher mortgage rate.’

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How have house prices changed in 2022?

In making a house price forecast, it’s helpful to reflect back on how house prices have changed in the previous twelve months. According to Nationwide, the average UK house price in December 2022 was £262,068, while in December 2021 it was £254,822– an increase of £7,246.

How will a house price drop affect your mortgage?

If the value of your house reduces, so does the amount of equity you have in it. You’ll usually need at least a 5% deposit to get a mortgage, although ideally you would have at least 10% to get access to a better choice of deals. And the best deals usually need a deposit of 40%. If you have a big chunk of equity in your home, a small reduction in it may not have much of an impact in terms of the number of remortgage deals you can get access to. But if you bought a property in the last year with a small deposit, a drop your house’s value may cause you difficulties in remortgaging if the drop in value means you have less than a 5% deposit. Get fee-free mortgage advice from our partners at L&C. Start online or give them a call today about your mortgage needs

How much equity does the average UK homeowner have in their property?

JLL analysis of the Bank of England Mortgage and Lending Report, shows 62% of the 8.4m mortgaged owner occupier households in the UK have at least 25% equity in their property. It also found another 34% have between 10-25% equity. Just 4% have between 5% and 10% equity, while 0.2%, around 17,000 owner occupied UK households, have less than 5% equity. If you’re selling a property a house price drop will have an impact on the sale price you can achieve. However if you’re planning to move up the housing ladder, then you may take a hit on the price you sell your home for but the house you’re buying should be cheaper too. But if you’re a landlord and selling properties a drop in price will hit you in the pocket. Find out about your options in our guide Buy to Let mortgage rates – what to do next.

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Will mortgage rates go down in 2023?

Mortgage rates increased throughout 2022 as the Bank of England increased the base rate of interest to curb surging inflation. The Bank made nine consecutive interest rate hikes taking it from 0.1% in December 2021 to 3.5% in December 2022. And mortgage rates shot up after the former chancellor’s Mini Budget of September 2022 with experts predicting interest rates would hit 6% in 2023. However, interest rates are now expected by many economists to peak at 4.25% and we saw mortgage rates finally start dropping back in November and December 2022. What happens to mortgage rates in 2023 is difficult to predict with any kind of accuracy: if interest rates go up by 1.25% it’s not as simple as lenders tagging 1.25% onto the rates they offer – there lots of different factors at play. However if you’re currently on a tracker mortgage and the base rate increases, you’ll face a mortgage rate rise. And if you’re on your lender’s SVR it’s less straight forward as these can change at the lender’s discretion. The lender can pass on the full increase, some of it, or none. And if it wanted to, your lender could increase rates by more. So it’s more important than ever to make sure you’re on the right mortgage. Get fee-free mortgage advice from our partners at L&C. Start online or give them a call today about your mortgage needs

House price predictions for the next 5 years

Assuming that interest rates peak then ease from mid-2024, Savills is forecasting that house values will start to recover and that the average UK house price will rise by 6% over the next five years.

I’m selling – will buyers expect a bargain?

Yes, there is some adjustment in the market so you should expect buyers will be looking to negotiate. And while you obviously don’t want to sell too cheaply you’ll want to be realistic about what your home is worth. This is especially true if you’re selling to someone who needs a mortgage. Their mortgage lender will carry out a mortgage valuation survey – and if the property is ‘downvalued’ down the line this will slow you down. And in the current market it’s more important then ever to choose the right estate agent to sell your house. Make the right choice and you may sell faster and pay less in fees. To help you do this, we’ve designed the Best Estate Agent Finder tool. It allows you to compare fees, the average time to sell a property like yours, how often they achieve the asking price and how successful they are at selling similar homes.

What is negative equity?

Negative equity occurs when the market value of your house is below the outstanding mortgage secured on it. It’s more common when house prices are falling and is a major concern when you want to sell your home. If you bought your home recently and with a small deposit you may be at more risk of falling into negative equity. Find out more in our guide What to do about negative equity?

How common are repossessions?

Banks currently have a low appetite for repossessions. In the early 1990s, banks repossessed around 100,000 homes per year while in the financial crash it was around 50,000 per year. As it stands there are around 4,000 repossessions per year. If you’re struggling to pay your mortgage you should contact your lender as soon as possible. Depending on your circumstances the lender may offer a range of options such as reducing the amount you pay for a short period of time. Take a look at our guide on the 7 ways to reduce your monthly mortgage payments. You can also get free money advice from various charities and organisations including Citizens Advice and Step Change Debt Charity

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