With inflation rising, there’s lots of talk of a recession, and this has people concerned about property prices falling. The recent headlines have got us thinking, does a recession always mean property prices will drop? What exactly is in store for the housing market this year? And what’s on the horizon for lettings?
These are topics at the forefront of many of your minds, here’s all you need to know…
Halifax expects house prices to fall in 2023 if interest rates and the cost of living keep rising*. There’s no doubt that the property market has been really strong in recent months, with prices seeing annual growth of more than 10% during the pandemic. Property prices did fall slightly towards the end of 2022, but asking prices defied expectations in January 2023 by rising 0.9% according to property website Rightmove*. These figures don’t quite tell the full story. There was a higher than usual New Year bounce and this price increase followed two months of falls, so the average price of property is currently lower than it was in autumn last year. Rightmove did also report that properties took an average of 52 days to sell in December 2022, up from 32 days back in May so it will be interesting to see if this continues.
House prices are falling slightly from a very high point during the pandemic. Although they have dipped, they are still very high by historical standards and have been rising much faster than wages.
The first rule for anyone predicting the trajectory of house prices in 2023 should be to ignore any data from the chaotic final quarter of 2022. One thing that's for sure is that rising mortgage costs and the broader cost of living crisis could push house prices down by about 8% in the next year, according to a forecast by the lender Halifax. House prices reached their peak last year, and as buyers increasingly recalculate their financial position in line with mortgage rates, house prices will come under further pressure.
According to Rightmove’s Rental Index, the national average asking rents outside London have hit a record of £1,172 per calendar month, taking average rent increases for newly listed properties to 9.7% for 2022. London also reached a new record asking rent of £2,480 pcm and Inner London rents surpassed £3,000 pcm for the first time. This is partly caused by the imbalance between tenant demand and the supply of private rental housing. If you’re a landlord with a property to rent out, it’s worth getting an up to date valuation.
The Bank of England increased the base rate for the tenth consecutive time on 2nd February by 0.5% (bringing the rate up to 4%).† Although this increase will impact some customer’s monthly mortgage repayments, some analysts are predicting that the base rate ‘peak’ will be lower in 2023 than previous industry forecasts.^ Data from Moneyfacts also suggests that despite base rate rises, availability of mortgage products have improved and fixed rates will fall further in 2023 in order for lenders to entice new business.^^ It’s worth exploring which mortgage could work best for you.
Inflation is a measure of the cost of living. The Bank of England is raising rates to try and bring it down to a target of 2%. In theory, if we raise interest rates, borrowing becomes more expensive for us all and so we spend less and save more. Getting inflation under control means putting upward pressure on mortgage rates and, also, house prices.
† https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp ^ https://www.bbc.co.uk/news/business-57764601
^^https://www.whatmortgage.co.uk/first-time-buyer/first-time-buyer-news/fixed-mortgage-rates-fall-again-will-the-price-cuts-continue-beyond-winter/
*Halifax House Price Index December - https://www.lloydsbankinggroup.com/media/press-releases/2022/halifax/halifax-uk-housing-market-review-and-outlook-for-2023
**Rightmove House Price Index January 2023
***Nationwide House Price Index December Q4 2022
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