Will House Prices Drop in 2023?

Will House Prices Drop in 2023?
Mike Whitehead

Author: Mike Whitehead - Content Editor

Updated: May 3, 2023

Since the turn of the century, UK house prices have grown at a phenomenal rate – with the average value of a home rising by 207% during this period. This growth rate was predominantly driven by demand far outstripping supply. Whereas in 1999 the average house price was £91,999 this figure peaked at £295,903 in August 2022.

But are there now signs that this long tidal wave of growth is beginning to turn and we’re set for a prolonged fall in UK house prices?

Are house prices now falling in the UK?

There are certainly indications now emerging that this could be happening. The Office for Budget Responsibility (OBR) – an independent watchdog which provides analysis on the state of the UK’s public finances – is currently forecasting a 10% drop in UK house prices over the next ten years.

The fallout from the disastrous mini-budget in September 2022 is widely seen as the key trigger event as many house price reports have shown a monthly decline year-on-year since their peak in August. Although the somewhat ‘freakish’ growth in house prices during the pandemic, which saw average price rises reach 10%, was always seen as unsustainable and a correction would be necessary at some point.

How much have house prices fallen by?

The most recent house price report at the time of writing (April 2023), issued by Nationwide Building Society, showed a monthly decline of 0.8% between February and March, putting the average UK house price now at £257,122. This indicates a year-on year decline of 3.1%.

The drop in demand for buying houses is also seen as evidence the current cost of living crisis is beginning to bite as many people are now focusing on tightening their finances rather than splashing out on newer and bigger homes. The fall in mortgage approvals – down 40% on the same level a year ago – fuelled by the Bank of England’s current trend of raising its base rate, would seem to back up this theory.

However, other recent reports have offered a more positive outlook. The latest results from Halifax, for example, suggested house prices rose by 1.1% in February from the previous month where they’d remained static. According to the latest data from Rightmove, house prices increased by 0.8% over February.

The pressure on borrowing costs now show signs of easing as mortgage lenders are factoring in the base rate increases before they happen. Average fixed-rate mortgage deals, which were in danger of reaching 6% in October last year – up from just 2.48% a year ago – have now fallen back down to between 4.5% and 4.75%.

Is now a good time to move house?

Zoopla’s latest house price index update has indicated that during Q1 2023 house price inflation has slowed to just 4.1% and, overall, house prices are now 1% lower than they were in October 2022.

Despite this, Zoopla also suggests that market conditions remain quite buoyant with total property sales still expected to reach around one million during 2023, supported by a 65% increase in the number of homes available for sale compared with a year ago.

This would indicate that a more healthy balance will be struck moving forward between supply and demand.

So, if you are thinking of moving house right now then it might simply be a case of ensuring you’ve crunched the numbers on the mortgage you’ll need and are confident your income can sustain the current high costs of borrowing.

There are also some other positive steps you can take to consolidate the value of your own home if, at some point, you do decide to place it on the market.

Remember, moving home is a long-term commitment. If, for example, you have a mortgage and you’re concerned about the current situation with interest rates the shrewd move would be to speak with a mortgage broker about the potential costs involved right now. This may reassure you that your dream move is still worth making – sooner rather than later.

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