Rising mortgage costs and the wider cost of living crisis will push house prices down by 8% next year, according to a forecast by lender Halifax.
Halifax, which in November recorded its biggest monthly fall in house prices in 14 years, said the market was now rebalancing after years of conditions that have led to some of the biggest price rises of housing never registered.
The coronavirus pandemic also fueled a mini-boom in housing, as flexible and home-based work led to a surge in sales of larger properties in more rural and idyllic settings.
“After such rapid house price growth and mounting headwinds, a slowdown was almost inevitable,” said Andrew Asaam, director of housing in Halifax. “As the rising cost of living puts more pressure on household finances and rising interest rates hit customers’ monthly mortgage payments, there is understandably more caution among both buyers and sellers, which has seen demand soften as people take stock.”
On Thursday, the Bank of England raised interest rates to 3.5%, the highest level in 14 years and its ninth consecutive increase, a day after the annual rate of inflation eased slightly to 10.7% Unemployment is also expected to rise to 5.5%.
House price chart
Halifax said that between the start of the pandemic in March 2020 and August this year, the average house price in the UK had risen by £55,000, almost 23%, to an all-time high of £293,992.
The bank said the 8% fall forecast for next year was equivalent to the value of a typical UK home in April last year, meaning homeowners would not see all their gains from the pandemic.
“There is still uncertainty around this forecast,” Asaam said. “The housing market will continue to rebalance to reflect these new rules. While overall inflation may be near or at its peak, household energy bills are likely to rise again, putting more pressure on family budgets.”
The average house price in the UK is currently £285,579, up £12,000 from a year ago. As recently as June, home prices rose 12.5% annually, the strongest annual growth rate since 2005.
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Last month, property portal Zoopla predicted UK house prices would fall by 5% next year.
“We expect 2023 to be characterized by a slower property market during which 25% fewer properties will come on the market and change hands compared to a ‘normal’ year,” said Sebastian Verity, head of research at the ‘chestertons estate agent. .
“The government is actively working with mortgage lenders to avoid additional strain on borrowers, so we believe the number of forced sales will be relatively small and that a lack of supply, combined with strong underlying demand for homes, will isolate the market of any dramatic drops in prices.”