13 December 2022 – Signs that the housing market is cooling down are becoming more concrete, with banking trade body UK Finance predicting property sales to fall by 21% in 2023.
According to the latest forecast by UK Finance for 2023, property sales will fall from 1.2 million this year to 1 million in the course of the next year.
The banking trade body also expects that the value of lending will drop, by 23% to homeowners and 27% to landlords.
But despite this, the housing and mortgage market will stay competitive, so the analysts at UK Finance.
1.8 Million Fixed-Rate Mortgages To End In 2023
With an estimated 1.8 million fixed-rate mortgage deals due to end next year, many people will look into their refinancing options.
But with mortgage rates at a higher level then when these mortgages were first taken out, many might face higher monthly payments, which will reduce their options.
Due to the higher mortgage rates, higher energy costs and costs of living, UK Finance expects that the number of arrears and repossessions will start to rise in 2023.
But there shouldn’t be a sharp rise and levels should stay below those seen before the pandemic hit.
UK Finance also predicts that mortgage lending will fall by 15% next year, which will see a return to pre-pandemic levels.
House Prices Expected To Drop Next Year
More commentators predict house prices to drop next year, with Rightmove suggesting property prices could fall by 2% in 2023.
This prediction comes as the property portal’s latest House Price Index shows that house prices have declined by 2.1% in December, with the average house price in the UK falling to £359,137.
While the market slows traditionally down before Christams, Rightmove said that this month’s drop is bigger than normal for this time of the year. This is a clear sign that sellers are adjusting to a cooler market.
Though we would always expect prices to drop in December, as motivated sellers try to capture the attention of a buyer before Christmas with a competitive price, this monthly dip is the largest we’ve seen for four years.Tim Bannister, Director of Property Science at Rigthmove
Rightmove suggests that the annual house price growth for this year will be 5.6%, which is a decline from 6.3% in 2021.
Although some buyers decided to put off buying a house for the time being, due to rising mortgage rates and the cost-of-living crisis, the portal has seen a 4% rise in enquiries to estate agents in the first two weeks of December, compared to the same period in 2019.
The number of people looking for homes for sale on the property portal is also up by 11% compared to last year.
This seems to suggest that many people are ready to buy, but are monitoring the situation and waiting for a more stable market in 2023.
All this seems to confirm the opinion of property expert Jonathan Rolande from the National Association of Property Buyers, who claims that it’s not a question of if but when house prices will fall in 2023.
So rather than wondering if prices will drop, people should ask by how much and how fast.
He argues that the current economic situation, with rising inflation, high energy costs and rising interest rates, will make buying a house less affordable. This will decrease demand which in turn will push down prices.
If there is a New Year bounce, buyer and lender confidence could hold and the rate of decline will be slow. But if 2023 doesn’t start with a property buying spree, that confidence will be further eroded and that could well spell monthly reductions throughout the whole of next year.Jonathan Rolande, National Association of Property Buyers
Interest Rates Set To Rise Further
The monetary policy committee of the Bank of England (BoE) is due to meet again on 15 December to decide on possible further interest rate rises.
With inflation standing at 11.1% in October, it is widely expected that the committee will raise the base rate from 3% to 3.5% this week, which would be a 14-year high.
This is likely to push up mortgage rates further. Currently, the average two-year fixed mortgage rate stands at 5.5%. A huge rise from just 18 months ago, when the same mortgage would have only had an interest rate of 1.5%.
How much further interest rates will rise is difficult to say, but experts think that inflation has peaked now and predict a slight fall in November.
If this is the case, the BoE might start to slow down the rate at which it currently raises interest rates.
While all this might sound like really bad news for the housing market, many commentators think that it’s robust enough not to collapse. And given the sharp rise in house prices since the pandemic, a drop in house prices might not be such a bad thing after all.
Many first-time buyers will hope that their dream of stepping onto the housing ladder will be achievable next year.