Signs Housing Market Is Weakening

Signs Housing Market Is Weakening
Disclosure: Clicking on links on this page may earn us a small commission. This helps us continue to produce free content and doesn't affect the price you pay.
7 February 2023 – House prices predicted to drop by 10% in 2023 as housing market is weakening, according to lender Santander.

After several interest rate rises, a cost-of-living crisis and rising energy costs, there are signs that the housing market is weakening.

Affordability has worsened significantly, which led to shrinking homebuyer demand. As a result, the high street lender Santander is predicting that house prices will fall by 10% in 2023.

Affordability Biggest Problem

House price growth continues to slow down. According to the latest House Price Index by Nationwide, annual growth is at 1.11% this month, down from 2.8% in December 2022.

The average UK house price stands currently at £258,297.

While mortgage rates have started to stabilise after they shot up following the ill-fated mini-budget, affordability is still a problem for many.

Especially first-time buyers will find it challenging to get onto the housing ladder. Recent rent hikes have meant that many spend 50%-60% of their income on rent.

This makes it very hard to save for a deposit. Even more so, because many wages have not kept up with inflation, while prices have risen sharply and continue to do so.

Higher mortgage rates further reduce the affordability. House prices have also risen sharply during the pandemic. This means that buyers will need a bigger mortgage to afford what they want.

Many first time buyers have adjusted their wish list and are now looking for flats, which is a more affordable step onto the property ladder.

Affordability is likely to be a problem for the near future, unless mortgage rates continue to fall, wages go up and house prices decline.

Should recent reductions in mortgage rates continue, this should help improve the affordability position for potential buyers, albeit modestly, as will solid rates of income growth (wage growth is currently running at around seven percent in the private sector), especially if combined with weak or negative house price growth.

Robert Gardner, Chief Economist at Nationwide

Analysts Predict Housing Crash

Some analysts at Oxford Economics believe that the UK’s housing market is about to crash. While they don’t anticipate house prices to fall by as much as during the financial crisis in 2008, they think the house price slump will last longer.

In 2008/2009 house prices fell for 16 consecutive months and dropped by 18%. Analysts predict that this time prices will fall for 24 months. But they only forecast a 12% decrease in house prices.

The reason for the prolonged crash is due to changes in the mortgage market. This means higher interest rates will not immediately impact mortgage rates, but will be filtered through slowly.

We think the much higher share of fixed rate mortgages now will limit the fall in prices and make it less steep, but more prolonged.

Andrew Goodwin from Oxford Exonomics

The reason why the property market has so far not crashed is due to unemployment being low. Also, a considerable number of homeowners are on fixed mortgage rates. This means rate rises will not impact them immediately.

But even fixed-rate deals won’t last forever. It is estimated that around 1.8 million mortgages will end in 2023. This means homeowners need to look at refinancing at much higher rates.

It is likely that many will look for a new fixed-rate mortgage, which means they will stay on higher rates for longer, even if the Bank of England starts to cut interest rates again.

Andrew Whishart from Capital Economics thinks that this might encourage the Bank to keep interest rates higher for longer.

As a result, analysts believe that the crash will be longer, and it will also take longer for the housing market to recover.

Slow Recovery

Analysts believe that if interest rates peak at 4%, it will take until November 2024 to get back to typical mortgage payments at the level of February 2022.

But if rates peak at 4.5%, affordability could still be as bad as in 2008 by the end of 2024.

After the financial crisis in 2008, the Bank of England slashed interest rates to stimulate the economy. This time round this is unlikely to happen.

With inflation still very high, the Bank will keep the base rate high to try and bring inflation down.

Commentators predict that interest rates will stabilise around 3%. This means that the housing market will take some time to recover in terms of prices as well as activity.

A crashing or weakening housing market is bad news for many, but it can also be an opportunity. Those who have the means will be able to bag themselves a bargain, as many have done after the financial crisis of 2008.

One thing sellers should keep in mind though is that even if house prices fall by 12%, they will still be higher than before the pandemic. This is because over the past two to three years house prices have risen by over 20%.


  • News Desk

    Our news desk team includes a qualified architect, a freelance journalist, and a fanatical property expert who has over 12 years experience in the industry.

    View all posts
Checklist - 101 Ways To Sell Your House Faster

101 Ways To Sell Your House Faster eBook


FREE Checklist: 101 Ways To Sell Your Home Faster

When you subscribe to our email newsletter. Plus, receive a 7-day crash course on how to get higher offers on ANY type of property.

You can unsubscribe at any time.
See our Privacy Policy.