House Prices May Not Crash as Much as Predicted

Author: Samuel Beckingham
Updated: Jan 18, 2023
4 minutes read

Even though inflation has been rising, along with interest rates and rents, the housing crash may not be as bad as previous estimates. However, interest rates are unlikely to fall because further intervention from the Bank of England is still expected to come. Halifax states that ⅘ mortgages are now fixed rate to mitigate the impact of any intervention. Hargreaves Lansdown estimates the Bank Rate will peak at 4% this year, which is lower than previous estimations after the disastrous mini-budget last year.

With the markets still reeling, house prices are dropping. For this year, estimates for how far they will drop are:

  • Rightmove - 2%

  • Zoopla - 5%

  • Halifax - 5%

  • Lloyds Bank - 8%

This is nowhere near as bad as the 16% reduction that was a result of the financial crash in 2008, and house prices have even been rising steadily since 2020 by about ⅕. The crash may not be as bad this time, but the south will suffer more than the north of England. The higher value markets of the south will feel the impact much more than the cheaper housing markets up north.

Due to the economic uncertainty from the cost of living and energy crises, home buyers will be looking for the right home at the right price. Savills believes buyers will most likely be needs-based this year, as well as those who are downsizing, but everyone else will most likely be waiting for the next 12-24 months for prime prices.

The good news is mainly for first-time buyers, who will be able to benefit from these reduced costs. A deposit will not need to be as much, and the government-backed Mortgage Guarantee Scheme, which offers a 5% deposit for homes up to £600,000, will be a massive help. Additionally, with no stamp duty on a new home up to £425,000 until 2025, more first-time buyers will be reaping the rewards of getting onto the property ladder.

Mortgages are now as good as they were before the market-spooking mini-budget, which was a cause of worry for millions across the UK who were facing steep increases in their monthly repayments as a result. According to UK Finance, over 25% of recent mortgages have been secured for 30 years or longer, simply to ensure easier repayments.

Searches in the housing market have started to resume to a pre-pandemic normal as well. Where there had been a mass exodus from London markets in favour of countryside houses, this is now starting to reverse again. Remote working positions fell to 14% on LinkedIn in September 2022, which is a reduction of 6% from February last year. As hybrid working or fully office-based work is now becoming more normal, people are moving back into London for convenience. Rightmove saw an increase in London house buying interest of 9% and a decrease in Cornwall houses by 18%.

The market trends are heading back in the direction they were in 2019, with more interest in apartments from younger buyers and a reduction in the interest for out of town houses with gardens. Hamptons estimates that ⅙ homes sold in 2022 were by landlords, which had an added effect to pushing up rents by 19% since the start of 2020.