After an economic rollercoaster end to 2022, what’s in store for the property industry in the UK for 2023?
As we start the year, the impact of the cost-of-living crisis and the recent rapid increases in interest rates dominate the sector.
Ongoing effect of higher interest rates
Thanks to a succession of interest rate hikes, the cost of mortgages has increased, making property purchases out of reach for many. The current Bank of England base rate stands at 3.50% – with some predicting it will rise to a peak of around 4.75% in 2023.
The interest rate rises, coupled with the cost-of-living crisis, have put a dampener on the previous high demand from buyers. First-time buyers, in particular, are postponing entering the housing market as they wait to see what will happen to the economy.
As a result, house price growth has slowed. According to the property website Zoopla, the demand for housing fell by 50% in the year to December 2022.
Will house prices fall in 2023?
While house price growth has slowed – has it yet reversed?
According to the Nationwide house price index, house prices in the UK rose by 2.8% in the year to December. However, that fell from an annual growth of 4.4%.
So far, that accounts for a 0.1% monthly fall in house prices – the fourth monthly drop in a row. The current average house price in the UK is £262,068.
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. Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.”
Andrew Wishart, senior economist at the consultancy Capital Economics, said their central forecast is for house prices to fall by 12% by the end of 2023 – predicting prices could drop by up to 20% in a worst-case scenario. He said, “The initial drop in house prices has been sharper than in the financial crisis or the early 90s. For affordability to return to a sustainable level by the end of 2023, when we think mortgage rates will still be around 5%, the average house price would have to drop by 20%. On the other hand, were market and mortgage interest rates to drop faster than we expect, that would limit the fall in prices.”
Regional variations in house prices
In 2022, different areas around the country saw varying levels of growth. While all regions experienced annual house price rises, the rate of growth slowed.
In a Nationwide survey of average house prices between October and December against the same period in 2021, East Anglia performed strongest in England, where average prices rose by 6.6% compared to the same three months in 2021.
Scotland was the weakest area, with a house price growth of 3.3%. Wales also slowed from 12.1% to 4.5% in the three months. In Northern Ireland, prices rose by 5.5% but that was against a 12.1% rise in the last three months of 2021.
The second slowest area for house price growth was London. However, house prices in the city are still the highest in the county at £528,000, which is around double the UK average house price.
Would you like to learn more about property investment?
This course will provide you with an introduction to property investment, whether you’re new, intermediate or experienced.