Rising mortgage costs and the broader cost of living crisis will push house prices down by about 8% next year, according to a forecast by the lender Halifax.
Halifax, which in November reported the largest monthly fall in house prices in 14 years, said the market was now rebalancing after years of conditions that have resulted in some of the biggest rises in house prices ever recorded.
The coronavirus pandemic also fuelled a mini housing boom as flexible and home working led to an increase in sales of larger properties in more rural and idyllic settings.
“Following such rapid house price growth, and the growing economic headwinds, a slowdown was almost inevitable,” said Andrew Asaam, a homes director at Halifax. “As the increasing cost of living puts more pressure on household finances and rising interest rates impact customers’ monthly mortgage payments, there’s understandably more caution among both buyers and sellers, which has seen demand soften as people take stock.”
On Thursday the Bank of England raised interest rates to 3.5%, the highest level in 14 years and its ninth rise in a row, a day after the rate of annual inflation eased slightly to 10.7%. Unemployment is also expected to rise to about 5.5%.
Halifax said that between the start of the pandemic in March 2020 and August this year the average UK house price had increased by £55,000, almost 23%, to a record high of £293,992.
The bank said the 8% drop forecast for next year equated to the value of a typical UK house in April last year, meaning homeowners would not see all of their pandemic gains wiped out.
“There is still uncertainty around this forecast,” Asaam said. “The housing market will continue to rebalance to reflect these new norms. While inflation as a whole may be close to or at its peak, household energy bills are likely to rise again, putting more pressure on household budgets.”
The average UK house price is currently £285,579, still up £12,000 on a year ago. As recently as June, house prices were riding a 12.5% annual increase, the strongest rate of annual growth since 2005.
Last month the property portal Zoopla forecast that UK house prices would fall by about 5% next year.
“We expect 2023 to be characterised by a slower property market during which about 25% fewer properties will come on to the market and change hands compared to a ‘normal’ year,” said Sebastian Verity, the head of research at the estate agent Chestertons.
“The government is actively working with mortgage lenders to avoid additional stress on borrowers, so we believe the number of forced sales will be relatively small and the lack of supply, combined with the strong underlying demand for homes, will ultimately insulate the market from any dramatic falls in prices.”