House prices predicted to fall in 2023 as mortgage rates rise
The swift increase in mortgage rates has seen buyer demand plummet by a third since the mini Budget in September, with house prices now set to drop over the coming months.
Property site Zoopla said the spike in mortgage costs represents the largest rate shock for new buyers since the 1980s.
And sustained mortgage rates of around 6% would lead to “double digit” price falls that wipe out value gains racked up over the pandemic.
However, Zoopla said this scenario is unlikely with rates closer to 4% and 5% likely to be the new normal.
The site expects property prices to drop by around 5% in 2023. Annual house price growth currently sits at 8.1%.
Price reductions and fall-throughs on the rise
Falling new buyer interest has been evident across the UK but most dramatic – reducing by around 40% – in the South East and West Midlands.
Reduced demand has coincided with an increase in asking price reductions. Almost 7% of homes have now seen the asking price reduced by at least 5%, Zoopla’s data showed.
At the same time, fall-throughs in sales are increasing mainly because of a lack of affordable finance impacting buyers, the property portal highlighted.
‘Christmas slowdown a month early’
Richard Donnell, executive director at Zoopla, said: “New buyer demand has dropped quickly in the face of higher borrowing costs, it’s like the Christmas slowdown has come a month early. We don’t expect to see any impact on pricing levels between now and December and this will only start to materialise in early 2023. It takes several months for pricing to adjust in the face of weaker demand.
“The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4% with a modest decline in house prices of up to 5%. The labour market remains strong and the supply of homes for sale is below average creating a scarcity of homes for sale that will support pricing.”
If prices fall by 5%, the average UK property would lose eight months of capital gains, according to Zoopla. In London, there would be the biggest loss of value with 13 months of gains eroded and Wales would have the least at six months.
Donnell added: “The outlook for the year ahead hinges on the trajectory for mortgage rates which impacts the buying power of households who are already facing higher living costs. Mortgage rates were always heading for 4-5% and the impact of the mini Budget has boosted them even higher.
“We expect borrowing costs to fall in 2023 easing some of the hit to buying power, but we also expect a degree of price adjustment in the face of price sensitive demand. House prices have risen significantly over the pandemic and homeowners wanting to sell in 2023 will need to be realistic on price and may have to forgo some of the pandemic price gains to achieve a sale in 2023.”
‘Level of sales higher than 2018’
Caroline Pattinson, managing director at Pattinson Estate Agents, added: “It has definitely been an interesting time in the property market in the last few months. Following the mini Budget and interest rate rises, we did see some buyers changing their mind about buying. We aren’t however seeing every chain collapsing and the sales pipeline dropping to nothing. A lot of the people who have sales underway committed to moving months ago and if they had submitted a mortgage application would be buying at lower interest rates.
“We still have new buyers registering and applying for mortgages, based on our figures I can see there is a slight drop in sales when we compare to October 2021, the interesting thing is that the level of sales is higher than in 2018. The number of properties exchanging this October is higher than last year and our sales pipeline has 65% more properties under offer than we had when we went into the first Covid lockdown.
“People move home/buy and sell properties for a variety of different reasons. In the upcoming weeks and months, the market will be driven by those who ‘need’ to buy or sell, as those who would ‘like’ to buy or sell sit back and wait for the dust to settle.”