October 3, 2023

Housing prices look set to decline in 2023.

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Most market observers and experts generally agree that prices will fall this year. Their home price projections range from 1% to 20%.

While some of the blame can also be placed on the rising cost of living and the threat of a recession, housing market experts say the biggest contributing factor is higher mortgage rates, which have made it harder to both get loan approval and implement monthly payments.

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Boiling water: The average home is down £15,500 from its August peak, according to Nationwide.

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Many novice buyers put their plans on hold in the hope or expectation that mortgage rates or home prices will fall. This may discourage some people from listing their homes for sale.

It is also expected that some mortgaged homeowners may be forced to sell properties over the next year due to higher payments or even property foreclosures, flooding the market with additional properties and lowering prices.

Landlords who rent out real estate are also at risk as rising mortgage rates lower their rate of return and potentially turn some of their real estate investments into loss-making liabilities. As a result, according to the National Association of Homelanders, 30% of landlords plan to reduce the size of their portfolio in 2023.

We look at what will happen in 2023 for these three main groups and how this can affect the housing market as a whole.

Will first-time buyers delay their plans?

The number of new buyers in the UK fell last year from record highs in 2021, which could be a sign that demand is already declining.

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There were 362,000 new buyers in 2022, compared to 405,000 the previous year, according to Halifax.

First time buyers may have the biggest impact on home prices this year if a huge number of potential buyers delay their plans.

Some may wait in the hope that home prices will fall, while others may wait until mortgage rates become more affordable.

The problem with many new buyers is that they are essentially caught between a rock and a hard place.

A common alternative for those who put off their plans to buy is to rent, although in some cases it will be to continue living with mum and dad.

Rents have been growing at a rapid pace since 2020. According to Zoopla, the average rent rose by 12.1% last year alone.

In his latest rental report, he found that rental affordability for the lone worker is at its lowest level in more than a decade and that while demand from tenants is 46% above average, the overall supply of rental homes is 38% below normal.

Zoopla says there are no signs of a slowdown in the rental market due to this chronic supply-demand mismatch, and rents are predicted to rise by 4-5% this year.

Cost Crisis: Per-worker rental affordability is at its highest level in more than a decade, according to Zoopla.

Cost Crisis: Per-worker rental affordability is at its highest level in more than a decade, according to Zoopla.

Will buying still be cheaper than renting in 2023?

According to the latest figures from Nationwide, the median first-buyer home price is £224,254, the least affordable since 2008.

However, there are signs that house price growth is slowing down after record highs over the past couple of years.

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For example, according to Rightmove, the average asking price of a newly listed house in February was only £14 higher than the previous month.

Nationwide says the average first-time mortgage is 77% of the property’s value (£172,654), with the balance being a deposit.

According to Moneyfacts, the average five-year fixed interest rate is 5.08%. At this average rate, a £172,654 mortgage paid over 25 years would cost £1,017 per month.

Compare that to Zoopla’s average UK rent of £1,078, buying still looks like a cheaper option when paid monthly – as long as someone has enough deposit.

However, new buyers should make sure they can also cover other costs associated with being a homeowner, such as insurance and property upkeep.

Rent Growth: According to Zoopla, the average rent in the UK has risen by 12.1% over the past year.

Rent Growth: According to Zoopla, the average rent in the UK has risen by 12.1% over the past year.

Michael Zucker of north London real estate agency Jeremy Leaf & Co says: “First time buyers and those who are trading higher have a much bigger impact on the market.

Rising rents and a shortage of affordable apartments could encourage first-time buyers to act sooner.

“Mortgage payments may be higher, but rents have also increased significantly in some areas.”

There is also a feeling that, given the slowdown in house prices, now is the time to get a good deal before the market heats up again.

Rob Bens, co-founder of property forum Property Hub, says: “Mortgage rates have calmed down and become more affordable lately, which means the market is more likely to stabilize than fall.

“Some lenders recently announced five-year fixes below 4%, which is a big improvement from what we’ve seen recently and we expect other lenders to follow suit.

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“Higher mortgage rates may be a hindrance for some first-time homebuyers, but they can also be a good opportunity for those who are financially secure.

“Due to reduced competition in the market, new buyers may have a chance to negotiate a good deal, taking advantage of the slowdown in market activity.”

Less competition in the real estate market means that new buyers can buy properties cheaper, which in turn means they pay less on their monthly mortgages.

Will homeowners be forced to sell because of expensive mortgages?

Mortgage rates have plummeted…