UK Housing Market In Sharp Slowdown

4 January 2023 – House prices have fallen for the fourth consecutive month, signalling a sharp slowdown of the UK housing market.

According to the final House Price Index of 2022 by Nationwide, house prices have fallen by 0.1% in December. This is the fourth consecutive monthly fall, which is the worst run since 2008.

The further monthly fall caused a sharp slowdown in the annual house price growth, which fell to 2.8% compared to 4.4% in November. The average house price in the UK is now at £262,068.

Is The UK Housing Market About To Crash?

While the further fall in monthly house prices suggests that the housing market is slowing down, Nationwide does not predict a crash.

The lender is optimistic that forced sales can be avoided, which is the main factor for a crashing housing market.

While unemployment is expected to rise in the coming months as the UK heads into a recession, experts anticipate the rate to rise to 5%. This is still low compared to historic levels.

Around 85% of people with a mortgage are on a fixed-rate, which means recent mortgage rate rises will not have had an impact on them. This will further lower the risk of forced sales.

Even those who look at refinancing shouldn’t have too many problems, as affordability testing is done using higher rates than we have at the moment.

Longer-term interest rates, which influence mortgage rates, have also fallen to more sustainable levels after they have risen sharply as a result of September’s mini-budget.

As long as there is no more economic upheaval, this should help to improve mortgage rates, making buying a house more affordable again.

But the sharp slowdown is a sign that the chaos and economic uncertainty of the recent months has prompted buyers to wait until the new year. Hoping to get more certainty about what way mortgage rates and house prices will go.

Which Way Will House Prices Go In 2023?

Because of the ongoing cost-of-living crisis and rising mortgage rates, experts expect house prices to fall this year.

Nationwide predicts a 5% fall in house prices next year, while Halifax anticipates an 8% drop.

While this sounds like a large drop in property prices, Halifax points out that prices have risen by 23%, or £55,000, between March 2020 and August 2022.

So homeowners don’t need to be too concerned as their properties wouldn’t lose too much value.

Such a fall would place the average property price back at roughly the level it was in April 2021, reversing only some of the gains made during the pandemic.

Andrew Asaam, Homes Director at Halifax

It is expected that lack of housing stock will continue to support house prices, preventing them from falling too sharply.

Housing Market Could Stagnate Until Summer

Meanwhile, a major estate agency, Chestertons, has said that their data shows that activity on the property market will stall until summer this year.

In the last months of 2022, buyers were in a hurry to complete their purchases, with November seeing 16% more exchanges compared to the previous year. This was also 12% higher than in October.

At the same time, Chestertons’ data also shows that the number of withdrawn offers and called off sales fell by 10%.

On the other hand, the number of new sellers and buyers coming onto the market has fallen by between 20% and 30% in November compared to the same time last year.

The estate agent interprets this fall in activity as a sign that the housing market is entering a quiet period for six to ten months. During this time, a sharp slowdown in activity is anticipated.

We’re expecting the number of properties coming to the open market to be much lower than normal until next summer. This will contribute to a 25% decrease in the number of sales happening next year, which in turn will support price levels.

Matthew Thompson, Head of Sales at Chestertons

Buyers will also be more reluctant during this period, waiting for the right opportunity to come along. This means more would-be buyers will decide to bide their time until the economic situation, house prices and affordability is getting better.

The estate agent expects that from summer 2023 onwards these buyers become active, which will mean house prices will start to rise again from 2024.

So it does look like the housing market is starting to cool down this year, which is good news if you are thinking of buying a house in the next year or two.

If you are planning to sell, you will have to accept that it’s no longer a seller’s market. Although with low supply, you could still get a good price for your property.