House prices roseunexpectedly duringApril, arresting seven consecutive months of declines. And while a rebound is too early to call, the prospect of a crash looks increasingly doubtful.
In 2014, Sir Jon Cunliffe, the deputy governor for financial stability at the Bank of England, warned that the housing market could be about to crash. Laying out his reasoning, Cuncliffe cited soaring property prices, which have historically been followedby equally sharp downturns.
Needless to say, Cuncliffe’s concerns did not materialise. Not only was a crash averted, but prices rose 5.7 per cent the following year, and have continued surging upwards since. During this nine-year period, countless others have either predicted or cautioned a crash was on the cards, and none have got it right.
This tells us two things. First, the housing market is notoriously difficult to forecast, and second, it's remarkably resilient.
But this year the situation was meant to be different. It seemed inconceivable that the market could withstand the return to higher interest rates, which would choke buyer affordability and cause prices to careen downwards. Some experts predicted valuations could fall as much as 30 per cent.
During the few first months of the year, the market certainly cooled. House prices fell 3.1 per cent year on year inMarch, according to building society Nationwide, the biggest annual drop since July 2009.
However, despite suggestions that even sharper falls might follow, much to everyone’s surprise house prices rose 0.5 per cent in April.
This has not only raised eyebrows, but also some serious questions, particularly for first-time buyers. Most notably, has the market already bottomed out with house prices set to bounce back sooner than expected? Or is last month's rise merely a blip with valutions set to resume their downward slide in May?
Let’s find out what’s going on.
What's changed in the property market?
The housing market has seen a notable shift in tempo sincelast autumn. Thefrantic activity between 2020 and 2022, when a red-hot market pushed prices to record levels, hasameliorated. House prices fell seven months on the bounce between September 2022 and March 2023, and mortgage applications dropped sharply in Q4 2022.
Although this has led to a calmer market, it's far from aturbulent one. The market may not have bottomed out, but it's in far better shape than many expected.
In fact, between January and February, mortgage applications rose from 39,647 to 43,536, after falling six months in a row.
However, there is still plenty of uncertainty around, and the future of house prices remains on shaky ground.
With interest rates rising from 0.1 per cent to 4.25 per cent since December 2021, mortgages have become more expensive, making it harder for buyers to purchase homes they could previously afford. In addition, those with the financial muscle to buy might be holding off in the hope of snagging a bargain should prices tumble.
For these two reasons, demand is still relatively thin compared to the previous two years and should stay this wayfor some time yet.
Have prices reached the floor?
April’s house price rise may have caught everyone by surprise, but wecan never read too much into a single month’s data. The steepest falls may still be to come.
In January, Halifax predicted prices to fall 8 per cent throughout 2023, while Capital Economics has forecasted a 12 per cent drop.
According to others, these falls could spill into next year. The Office for Budget Responsibility expects house prices to tumble until September 2024.
One major headwind continues to be inflation which is squeezing buyer affordability.
The Consumer Prices Index, the UK’s main measure of inflation, dropped 0.3 percentage points to 10.1 per cent in March, kept in double digits by rampant food costs, which rose at their fastest pace in 45 years.
Thiswas met with a somewhat mixed response.
On one hand, it indicates that February’s inflation rise was almost certainly a blip, and we can expect price rises to continue easing over the coming months.
But on the other, prices are still rising faster than at any other point in the last 40 years, and the Bank of England’s prediction that inflation will fall below 3 per cent by the end of the year looks increasingly ambitious.
With inflation proving stickier than anticipated, at least one further interest rate rise now seems inevitable. The BoE’s Monetary Policy Committee meets again on 9 May and will likely jack the base rate up to 4.5 per cent.
This could prove painful for borrowers, as mortgage rates may edge up as a result. Those on variable rate loans will see repayments rise immediately, while new fixed-rate deals may become more expensive.
Is now a good time to buy?
While no one wants to overpay for a property, timing the market is incredibly tricky.
Events during the pandemic offer a case in point. Many expected house prices to fall when Covid hit, but the combination of the race for space, the stamp duty holiday, and beefed up consumer savings sent buyers flocking to the market. This caused valuations to rise more than 20 per cent in two years.
If you're currently looking to buy, have found your dream home and can afford the repayments, whether prices are either high or low is unlikely to prove much of a deterrent.
How might falling prices affect me?
This very much depends on your personal situation.
If you’re a first-time buyer, lower property prices might be the only way of getting a foot on the ladder, given the sharp rises we’ve seen since the pandemic. The average home is now 10 times more than the average income, and most lenders cap borrowing at 4.5 times annual earnings.
But for current homeowners, especially those whobought recently, a crash would run the risk of negative equity. This is where the borrowings on your property are worth more than the property itself, which can make it difficult to sell your home and remortgage.
Does the market favour buyers or sellers right now?
Up until last year’s ill-fated mini Budget it was still very much a sellers’ market, despite rising interest rates. With multiple buyers scrapping it out for each home, price wars broke out. Most sellers received offers far above their original asking price.
Since then, the market has become less competitive. Mortgage rates increased sharply in response to then-chancellor Kwasi Kwarteng’s tax-cutting measures. Rates have come down quite a bit since then, but it's fair to say sellers no longer hold all the cards.
In February, sellers shaved an average of £14,000 off the initial asking price, andaccording to This is Money, estate agents averaged 35 homes for sale per branch in March, the highest number since January 2021.
With more homes entering the market, buyers are in a stronger position to negotiate the right price.
What's going on with mortgage rates?
Despite interest rates continuing to rise this year, mortgage rates have become cheaper, much to the relief of borrowers.
As noted above, one of the reasons rates are coming down is that lenders are fighting over a smaller pool of buyers.
According to Uswitch, the price comparison site, the average two-year fixed deal is currently 5.14 per cent, while the average five-year fix is 4.69 per cent.
Meanwhile, the average two-year variable rate mortgage is 4.84 per cent.
It's worth noting that in October the average two-year fixed deal was above 6 per cent, so although rates are higher than they were a year ago, the situation has improved significantly.
However, the best rates on the market are around the 4 per cent mark, so it’s really important to shop around before locking into a fixed-term deal.
I'm looking to buy – should Itake mortgage advice?
Regardless of whether you’re a first-time buyer, upsizing your current home, or looking to remortgage, it’s never been more important to seek expert advice.
A mortgage adviser will scan the entire market to find the deal that’s right for you, which could save you hundreds of pounds a month in repayments, freeing up more cash to protect your household finances from the rising cost of living.
Click below to connect with a mortgage broker today.
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FAQs
House prices fell seven months on the bounce between September 2022 and March 2023, and mortgage applications dropped sharply in Q4 2022. Although this has led to a calmer market, it's far from a turbulent one. The market may not have bottomed out, but it's in far better shape than many expected.
Are UK house prices going to fall in 2023? ›
Property prices were expected to continue to drop while interest rates remained high, but Rightmove has reported that buyer demand was 3% higher in May 2023 compared to May 2019. And May's property price increase has been the highest so far this year, so it is possible that house prices could continue to rise in 2023.
Are UK house prices going to drop? ›
If mortgage rates stay at 4-5%, we expect to see annual UK house prices change between +2% and -2%, as long as the labour market remains strong. However, the latest inflation data is higher than expected, which suggests we may be at a tipping point for UK house prices.
Should I buy a house now or wait until 2023 UK? ›
While reduced interest rates may mean demand for houses could increase, this will also make monthly mortgage payments more affordable, which could mean 2023 is the perfect year for you to buy a house instead of waiting until 2024.
Is the housing market slowing down in England? ›
24 May: House Prices Fall For Fifth Consecutive Month – ONS
The average price of a UK home reached £285,000 in March 2023, which is £3,000 lower than February 2023. Despite this monthly decline, however, prices grew year-on-year, rising 4.1% (£11,000) since March 2022.
Will UK house prices fall in 2024? ›
Analysts at Nomura predict UK house prices will drop 15 per cent by mid-2024, estate agency Savills (SVS) and UK banking group Lloyds (LLOY) forecast prices will slump 10 per cent in 2023, while Knight Frank, another agency, is predicting a 10 per cent fall over 2023 and 2024.
How far will house prices fall in the UK? ›
The estate agent Savills has forecast that the average UK house price will fall by 10% this year, “with growth expected to resume in 2024 as affordability pressures gradually ease”. The investment bank Nomura is among the most downbeat: last month it forecast a 15% fall in UK house prices by mid-2024.
What will happen to UK house prices? ›
House prices could fall by 10% over the next two years, according to forecasts from the Office for Budget Responsibility (OBR). Read more: What's happening with UK mortgage rates?
Will house prices fall in the UK recession? ›
Capital Economics' central forecast is for house prices to fall by 12% by the end of 2023, but Andrew Wishart, senior economist at the consultancy, said in a worst-case scenario prices could plummet by up to 20%. “The initial drop in house prices has been sharper than in the financial crisis or the early 90s.
Is now a good time to sell house UK? ›
If you're considering selling your house or looking to upgrade, now may be the perfect time for a successful transaction. Prices are rising and estate agents Oliver Rayns have estimated that UK estate values will continue to increase until 2023, making now an ideal opportunity to capitalise on it.
The UK housing market is facing a number of headwinds in 2023, including rising interest rates, diminishing affordability, and economic uncertainty. As a result, it is likely that house price growth will slow or even decline in the coming year.
Should I sell my house now or wait until 2024 UK? ›
Future Plans: If you have plans to buy a new home in the near future, it may be better to wait until 2024 to sell your current home. This way, you can take advantage of any market improvements and get a better price for your home, which could help with the down payment and closing costs of your new home.
What will 2023 bring for the UK housing market? ›
2023 – 2024
Capital Economics forecasts that the base rate will reach 5% in 2023 before dropping to 4.25% in 2024. However, experts agree that high mortgage rates of around 5% will remain standard for the next 2 years. As a result, fewer buyers can afford homes, and house prices will drop.
Is England in a housing crisis? ›
Britain has a severe housing crisis, especially in the most prosperous places in the Greater South East. Across England, the average house costs more than ten times the average salary, vacancy rates are below 1 per cent, and space per person for private renters has dropped substantially in recent decades.
Is the UK housing market in crisis? ›
The British housing market is much more exposed to higher mortgage rates than other European markets. Across the Continent, debt service repayments increased on average by a third between 2021 and 2022, according to the International Monetary Fund. In the UK, the jump was 70pc.
When was the last property crash UK? ›
The 2008 financial crash
The biggest fall in UK house prices in recent memory was brought about by the financial crash of 2007-2009, which occurred as a result of deregulation in the financial industry and mortgage brokers in particular.
How much will the average UK house cost in 2030? ›
The UK as a whole
Our underlying forecasts suggest that property prices will rise 23% by 2020 and 97% by 2030. An averagely priced home costing £280,000 today, would therefore cost around £344,000 five years from now and over half a million in fifteen years' time.
How much will a house cost in 2050 UK? ›
If the current property market trends carry on more or less as they are, the UK could see an average house price of £392,301 by 2050. 'This year, house prices in the UK have increased at an unprecedented rate, increasing by 26 compared to 2015 and 7 per cent compared to 2019,' says Nima Ghasri, Director at Good Move.
What will happen to London house prices in 2023? ›
In the 2022 - 2026 Residential Report, JLL data suggests that in 2023, London is set to see the highest price increases in the country over the year at 5.5%.
Has the UK housing market peaked? ›
Sellers will have to cut prices to find buyers, says Paul Smith, whose company operates Haart, Felicity J Lord and others.
Building status for England
| Building status | Average price November 2022 | Annual price change % since November 2021 |
|---|
| New build | £445,990 | 24.1 |
| Existing resold property | £307,024 | 10.0 |
Mar 22, 2023
Scottish House Price Performance: National
Although this remains a high level of annual house price growth, this is down from the 11.7% annual house price growth to Q2 2022.
Are UK house prices unaffordable? ›
The average British home now costs about nine times average earnings: one estimate I recently read reckoned that the last time UK houses were this expensive was in 1876.
Why is property so expensive in the UK? ›
Property investments from foreigners have driven up the prices of housing in the UK, as people often have more financial muscle to readily buy higher-end properties. Thus, local buyers compete with investments such as foreign individuals, companies, and governments.
How long will UK recession last? ›
The UK recession will be almost as deep as that of Russia, economists predict. In its 2023 macro outlook, Goldman Sachs forecast a 1.2% contraction in U.K. real GDP over the course of this year, well below all other G-10 (Group of Ten) major economies. This would be followed by a 0.9% expansion in 2024.
Is it better to have cash or property in a recession? ›
In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.
Should I sell my house now before recession? ›
Reasons to Sell a Home Before a Recession
Best Price – Home prices are typically at their highest during a time of economic expansion which is the opposite of a recession. If you want to get the highest price for your home, aim to sell the home at a time of economic exuberance.
What month is the hardest to sell a house? ›
Fall and winter are the worst seasons to sell
Just like in the warmer months, the weather plays a factor in the winter months, too. As the days get dark earlier and temperatures drop, people tend to stay close to home. This means less foot traffic for sellers.
How long do most houses stay on the market UK? ›
The average time to sell a house, after being listed, is two to three months. It's important to note that this is the average time across the entire UK property market.
What month do most houses go on the market UK? ›
Why is March the best time to sell? The number of buyers enquiring about homes for sale on Rightmove is usually highest at this time of year. We see more buyers looking to move in March than in any other month of the year. Competition between buyers for the homes available is traditionally at its peak.
House prices, as measured by the UK House Price Index, increased by 4.1% between March 2022 and March 2023. On a seasonally adjusted basis, average house prices decreased by 0.9% between February 2023 and March 2023. House prices grew at different rates across the UK's countries and regions over the year to March.
Why buying real estate in 2023 is a good investment? ›
Despite what some may think, 2023 is still a good year to invest in real estate, thanks to advantages like long-term appreciation, steady rental income, and the opportunity to hedge against inflation. Mortgage rates are expected to decline, but the housing market is likely to remain competitive due to low supply.
Are UK house prices predicted to drop by at least 10 in 2023? ›
UK house prices are expected to fall by 10% from their previous peak in the fourth quarter of 2022, according to the Office of Budgetary Responsibility (OBR) forecast published on Wednesday as chancellor Jeremy Hunt unveiled his budget.
Will house prices go down in 2024 usa? ›
Heading forward, Zillow's forecast model expects U.S. home prices, as measured by the Zillow Home Value Index (ZHVI), to jump 4.8% between April 2023 and April 2024. For perspective, national home prices as tracked by ZHVI have averaged an annual appreciation rate of 5.08% since 2001.
How much will a house cost in 2024 UK? ›
If inflation rises by, on average, 5% per year for the next two years, we could then expect a 40% decline in nominal house prices from December 2022 (by comparison, the OBR estimates a 10% decline). This would be a fall from £265,200 to £160,000 by the end of 2024 (Chart 6).
Are houses selling quickly in the UK? ›
Rightmove's data show that although properties in the largest-homes sector are still selling at a faster pace than in 2019, the average time it takes to secure a sale has increased significantly.
What is the average price of a house in the UK in 2023? ›
The average UK house price was £288,000 in February 2023, which is £16,000 higher than 12 months ago. Average house prices increased over the 12 months to £308,000 (6.0%) in England, to £215,000 in Wales (6.4%), to £180,000 in Scotland (1.0%) and to £175,000 in Northern Ireland (10.2%).
Is housing benefit going up in 2023 UK? ›
For Greater London residents, from April 2023 the limit on benefit payments will increase to: £25,323 a year (£2110.25 a month) for couples (with or without children) and single parents with dependent children.
Will 2023 recession affect housing market? ›
Fannie Mae expects U.S. home prices to fall -1.2% between Q4 2022 and Q4 2023, and then another -2.2% between Q4 2023 and Q4 2024.
Does America have a housing crisis? ›
Studies have shown that for the past 40 years, housing supply has not kept pace with demand, resulting in a housing shortage ranging between 2 million and 6 million homes. Yet across America, a combination of recalcitrant homeowners and outdated zoning laws routinely block attempts to build more housing.
This is caused in part by a rise in inflation in the UK, as well as the economic impact of ongoing issues such as the COVID-19 pandemic, Russia's invasion of Ukraine, and Brexit. While all in the UK are affected by rising prices, it most substantially affects low-income persons.
How many empty homes are there in the UK? ›
This number represents an increase of almost 23,500, or 3.6%, over the last 12 months. Of these, 248,633 homes are classed as long-term empty properties, having been empty for over six months. The number of long-term empty homes in England has increased by 4.8% over the past year.
What percentage is over asking price? ›
Some real estate professionals suggest offering 1% – 3% more than the asking price to make the offer competitive, while others suggest simply offering a few thousand dollars more than the current highest bid.
How much will house prices be in 2030 UK? ›
The UK as a whole
Our underlying forecasts suggest that property prices will rise 23% by 2020 and 97% by 2030. An averagely priced home costing £280,000 today, would therefore cost around £344,000 five years from now and over half a million in fifteen years' time.
Will 2023 be a good time to buy a house? ›
Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.
Will house prices go down in 2023 usa? ›
Although home prices are expected to improve in the second half of the year, the California median home price is projected to decrease by 5.6 percent to $776,600 in 2023, down from the median price of $822,300 recorded in 2022.
Will my house be worth less in 2024? ›
Home Price Predictions
While it's quite possible for median home prices to fall another 5% in 2024 – or a total potential drop of about 10% from the end of 2022 – if mortgage rates decline faster than predicted, that could mean home prices remain mostly flat through the end of 2024.
Will my house be worth more in 5 years? ›
According to a report by Zillow, home values are projected to increase by 5.5% over the next year, slower than the 16.9% increase seen in 2021. Zillow predicts that home values will increase by 3.5% in 2023, 3.4% in 2024, 3.3% in 2025, and 3.2% in 2026.
Will 2030 be a good year to buy a house? ›
California is set to have the highest average home next decade, with a predicted price of $1,048,100 by September of 2030, if prices continue to grow at the current rate.
