Prices going northward in the UK

It's finally happening, as predicted by many experts. The UK is experiencing a steep fall in house prices, the longest since the 2008 financial crash. According to Halifax, house prices fell by 1.5 percent in December compared to November 2022. Since August 2022, the prices have plunged by 4.3 percent. Lloyds Bank is predicting an even steeper drop of seven percent in 2023. Homeownership in Britain has been seeing a one-way movement, with prices going northward steadily every year since 2012. It now appears that the boom is over.

Steadily dropping demand for homes has been the primary trigger for the drop in house prices in the UK. The rising mortgage rates added to the problem. Interest rates remained high after the fallout from former chancellor Kwasi Kwartengs mini-budget. It pushed average mortgage rates above 6 percent resulting in chaos in the mortgage market. As interest rates rose sharply, it constrained the borrowing capacity of potential buyers. After Jeremy Hunt took over as chancellor, the financial markets calmed and steadied. Mortgage rates are falling, but the pricing is higher than the average rate of 2 percent seen in 2021.

Predictions by institutions

Various agencies and banks have been predicting a drop in house rental prices in 2023.

The Nationwide Building Society has predicted a five percent fall, while Capital Economics and Oxford Economics say a 12 percent decline in prices is within the realms of possibility. Money Week says the housing market situation is bleak. The explosive growth of the past two years is now replaced by the slowing down of the market. The borrowing cost is rising as the interest rate increases.

Impact on the mortgage market

As rates begin to reach a normal range, buyers are expected to take a relook at their financial position.

Data from government sources suggest that two million plus borrowers with fixed-term deals may have to remortgage between now and 2024 when they will have to deal with higher mortgage pricing. A household with average income, refinancing a two-year mortgage with a fixed rate early next year would see monthly repayments jump significantly. Nationwide predicts that a first-time buyer with an average income dealing with 5.5 percent will have to spend a whopping 45 percent of their income on a mortgage. These figures are highly impractical and unaffordable. Leading estate agency Savills predicts a 10 percent drop in property values in 2023, with transactions expected to drop steeply.

Places where the housing is affordable and buyers are not stretched as much as they are in other areas will remain insulated from steep falls in prices. HMRC figures show that the sales volume of the property has fallen in January 2023. The non-seasonally adjusted estimate also shows that the number of residential transactions in January 2023 is down seven percent compared to January 2022. Seasonally adjusted estimate reveals a 10 percent decline for the same period.