This year has seen a lot of changes in the housing market. In 2022, we have seen record-breaking house price increases, huge buyer demand, and homes selling faster than ever before. There was an increase of 5.6% in asking prices in Great Britain this year, to an average of £359,137. Prices were almost £17,000 higher than they were in 2021, when they increased 6.3%.
The imbalance between supply and demand has been a major driver of house price growth over the past two years, with more people looking to move than homes available. While this is certainly a factor, low interest rates have been driving the housing market since the outbreak of the pandemic. It is easier for people to afford mortgages when they can borrow cheaply.
Yet since December 2021 the Bank of England has increased the base rate nine times from its record low of 0.1%. The base interest rate now sits at 3.5%. The increase is due to rising inflation, which hit 10.7% in November. With mortgage rates rising, purchasing a home has become more expensive, and prices have been dipping in recent months as a result. It is expected that interest rates will rise further in 2023, which will negatively impact the housing market because mortgage repayments will rise.
It is likely that the cost of living crisis will be the biggest factor causing the housing market to slow down. With household budgets being squeezed, fewer and fewer people are able to afford to buy a home.
First-time buyers may hold off as they await developments that could impact the market.
How have house prices changed?
A slowdown and even reversal of house price growth is evident in house prices. The reason for this is that buyers’ demand for housing is waning due to rising living costs. As of December 2022, Zoopla reported a 50% decline in housing demand.
Among UK mortgage providers, Halifax reported a 1.5% fall in prices in December. Putting the average UK house price at £281,272, this is the fourth consecutive monthly drop.
In November, house prices dropped by 2.3%, the largest decline since 2008.
Despite the fall in growth, annual growth stays strong at 2%, a dramatic drop from June’s 12.5% high. A major UK mortgage provider has said that excluding significant annual price drops in the near future would be foolish.
Nationwide reported a 1.4% drop in November, the biggest decline since June 2020, when the Covid pandemic was at its peak. Robert Gardner, Nationwide’s chief economist, said the market has undoubtedly been impacted by the turmoil following the mini-budget, which led to a sharp rise in market interest rates.
What are the regional variations in house prices?
Regions see different levels of growth in property prices, with regional variations.
Even though the rate of growth has slowed, all nations and regions saw annual house price increases in 2022.
Nationally, here’s a comparison of October and December 2021 average house prices:
- East Anglia was the strongest performing region in England, with average prices increasing by 6.6% compared to the same three months in 2021
- Scotland was the weakest performing region, with house price growth of 3.3%
- Wales saw a significant slowdown in growth, slowing to 4.5% from 12.1% in the previous three months
- Northern Ireland saw prices increase by 5.5%, much weaker than the 12.1% rise recorded in the final three months of 2021
- House price growth was second slowest in London. But prices in the capital are still the highest in the UK at £528,000, almost double the UK average
How do prices differ for different types of property?
Mortgage lenders have observed price differences between property types as a result of the pandemic. Prices of detached, family homes have grown more rapidly than flat prices since the onset of the pandemic.
Figures from Nationwide Building Society show that the average price of:
- A detached property increased by 26%, or nearly £78,000 in cash terms between 2020 and 2022. Looking at just 2022, detached properties increased by 5.9%
- Flats increased by 13.4% on average, or £23,000, between 2020 and 2022. Looking at just 2022 the average price of flats increased by 2.1%
According to the Office for National Statistics, semidetached and terraced houses are most likely to rise in price. According to the data, the average price in October 2022 was:
- Detached houses reached £468,376, up 12% over the year
- Semi-detached house prices hit £287,383, an increase of 14%
- Terraced houses hit £242,690, an increase of 14%
- Flats reached £235,237, an increase of 8.6%
In 2023, where will house prices be?
Several mortgage providers retracted deals after the controversial September mini-budget and hiked rates, pushing up the cost of mortgages. With the Bank of England raising its base interest rate to 3.5%, these effects could be exacerbated. Consequently, house prices are expected to fall due to a reduction in demand among potential buyers.
Predictions:
- In November 2022, property website Zoopla said it expected prices to fall by 5% in 2023
- In December 2022, Robert Gardner from Nationwide said house prices are likely to see a modest decline in 2023 of around 5%. He said there would need to be a significant deterioration in the labour market to generate the double-digit falls that have been suggested by some forecasters
- In January 2023, Halifax predicted that house prices would fall around 8% over the year. But it said that a drop of 8% would mean the cost of the average property returning to April 2021 prices, which still remain significantly above pre-pandemic levels
- In his first speech of 2023, prime minister Rishi Sunak, said eh expects inflation will halve this year. This could see mortgage rates drop too.
- Lloyds Bank has forecast house prices to fall by 8% in 2023. It has set aside £668 million to cover bad debt, which could arise due to borrowers struggling to make repayments
- The Bank of England has predicted house price growth to slow down later on this year, with mortgage providers expected to cut down on lending as the economy struggles
- Halifax warned of a “significant downward pressure” on prices as mortgage costs rise. It said the price trend suggested a downwards path in the short term due to affordability concerns
Because of high inflation, interest rates are rising, slowing down the housing market. Rightmove reports that 23% of homes for sale in October had their asking prices reduced. In recent weeks, Zoopla’s house price index found that sellers have had to reduce their asking prices by an average of 4% to sell their properties. The number of new buyers’ inquiries is also declining, according to surveyors.
Due to the reduced demand, more buyers will be able to negotiate on the price of properties, resulting in lower house prices.
