House Price Outlook

PNWokingham

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There have been plenty of articles giving predictions over recent months - i have not seen any positive ones. I can't see how prices do not fall by at least 10% next year and if interest rates overshoot in 2023, it could be 25% over the next 2 years. Telegraph article below

https://www.telegraph.co.uk/propert...-2023/?li_source=LI&li_medium=liftigniter-rhr

House prices will slump in 2023 as high mortgage rates crunch buyers’ budgets and bring sales to a 12-year low, analysts have warned.

From peak to trough, values will fall by 12pc, according to both Capital Economics and Oxford Economics research consultancies. Lloyds bank, Pantheon Macroeconomics and the Centre for Economics and Business Research have each forecast an 8pc fall.

Nationwide building society expects a 5pc drop – but in a worst-case scenario, it said values could plunge by 30pc.

Sceptical readers may cite previous forecasts for house price falls during the pandemic which never materialised. But the outlook for 2023 is very different – apart from anything else, it is clear the downturn has already begun. So how will soaring rates affect the market and how far might house prices fall?

Growth is fast being eroded
Between August and November, the average UK property shed £9,963 in value – a drop of 3.6pc, according to Nationwide.

The house price growth that was recorded this year is now being eroded fast. Home values in November were up only 3.2pc compared to at the start of the year, as the curve of the pandemic property boom starts to nosedive.

Transaction levels are also about to tank. Savills has forecast that there will be only 870,000 sales in 2023, the first time the number has dropped below 900,000 since 2011. That is a fall of nearly a quarter, compared to the total recorded to date in only 11 months in 2022. There will be 606,000 fewer sales than in 2021.

While it is slightly too soon to see big falls in price indices and sales figures, there are lead indicators that show a clear downward trend. There were 58,977 mortgage approvals for home purchase in October, according to the Bank of England.

Excluding the months in 2020 when the property market was in lockdown, this was the lowest number recorded since June 2013, when the market was still recovering from the global financial crisis.

The end of cheap debt
The market is undergoing a sea change now that the era of cheap debt is over. At the start of December in 2021, the average two-year fixed mortgage rate was 2.34pc, according to Moneyfacts, a data company. A year later, that rate was nearly three times higher, at 6.01pc.

In just a year, the annual interest bill for a borrower with a typical £200,000 loan has jumped from £4,680 to £12,020 – an increase of 157pc.

As a result, the share of a median joint-household income needed to cover the mortgage payments on a typical home with a 20pc deposit has soared from 25.7pc to 40pc, according to Capital Economics. The property market is now the most unaffordable it has been since October 2007 – just before house prices fell by one fifth.

The mortgage market outlook has improved dramatically since the slew of unfunded tax cuts in the September mini-Budget sent financial markets into panic. Rates have cooled since they peaked in October – but they are still much higher than they have been in many years, and are far from what homeowners have become used to and can afford.

As a result, these much higher rates will undoubtedly hit house prices, says Andrew Wishart, of Capital Economics. “While the current level of house prices was sustainable when mortgage rates were 2pc, that’s not the case at 5pc, 4pc or even 3pc.”

HOMES HAVEN'T BEEN THIS UNAFFORDABLE SINCE 2007

The impact of higher rates
High mortgage rates have a two-pronged effect on the housing market. First, they hit new buyers by reducing the amount that they are able to borrow. “What will define the housing market is affordability at the point of purchase. Borrowers simply haven’t got the buying power,” says Lucian Cook, of Savills.

A jump in mortgage rates from 2pc to 6pc cuts a typical borrower’s loan size by 35pc, according to property website Zoopla. Many buyers will be unable to borrow at all as they will fail lenders’ affordability checks, which are based on their standard variable rate (plus at least one percentage point).

As SVRs are pegged to the Bank Rate, affordability checks will become even harder to pass next year as the Bank Rate rises, even if fixed-rate mortgage rates continue to fall.

Sellers may also become more motivated. UK Finance, the lender body, estimates that 1.8 million homeowners will come to the end of fixed-rate mortgages in 2023. These homeowners will get hit by vastly higher rates when they refinance, and so there may be a need to sell up, creating a spike in supply of properties for sale.

The blow will be particularly acute for the 500,000 borrowers coming to the end of two-year fixes. These homeowners will see their mortgage rate increase by four percentage points, according to Pantheon. For a homeowner with a £200,000 loan, that means monthly interest payments will jump by £667.

Add this to the largest drop in real household disposable incomes on record, the surge in energy prices, and the recession and the strain for many will be extreme.

Saving grace
Yet analysts are not forecasting mass repossessions. The housing market has something of a white knight – lender forbearance.

The Financial Conduct Authority, the City watchdog, has already planned guidance that will include letting borrowers switch temporarily to interest-only payment plans without needing to have a clear repayment plan.

“It is the big difference between now and the downturns in the 1990s and during the financial crisis – the extent to which the banks and the regulators will go with forbearance. The ability for lenders to offer interest-only is going to be really critical to what happens,” says Cook.

During the housing downturn of the early 90s, hundreds of thousands of homes were repossessed by banks, which in turn triggered even deeper price falls. During the financial crisis, banks repossessed far fewer homes. Now, homeowners have been stress tested far more vigorously, and lenders are likely to be even more generous.

“It is now ingrained in lenders’ psyches that they must use forbearance,” says Philip Shaw, of Investec financial services.

Another key factor that will determine levels of forced sales will be the labour market. Unemployment is forecast to rise from its near-record low of 3.7pc, but the forecasts so far have been conservative.

“In order to see a 30pc house price drop, we would have to see a significant amount of stressed selling. We don’t think that’s likely because even if unemployment hits 5pc, that will still be low by historical standards,” says Robert Gardner, of Nationwide.

One of the biggest question marks hangs over the market for flats. Between 2016 and 2021 flat sales slumped. As a proportion of all UK transactions, flats fell from 20pc to 15pc, according to Capital Economics.

This slump was driven first by the building safety crisis that unfolded after the 2017 Grenfell fire, and made hundreds of thousands of properties unmortgageable. Then the pandemic race for space shifted buyer demand to houses and city outskirts.

But now lenders are preparing to grant mortgages on flats affected by the building safety crisis, following major government intervention, and the pandemic trends are reversing. In the first three months of this year, flats as a proportion of all sales jumped to 16.5pc.

Now, higher rates are pushing buyers towards flats, which are more affordable than houses. This part of the market could see a jump in sales next year, while a sudden flood of supply as lenders start to loosen restrictions on buildings with cladding could also push down prices.
 

D-S

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About time too. The persistent rise in prices, without any simultaneous increase in costs, vastly outstripping wage increases has been shocking.
I never understand why folk hate inflation in every other area (see the ’Membership Cost Increase’ thread’) but seem to welcome it in housing - just feel sorty for all the first time buyers in the last years who have suffered from this and will do so for the rest of their lives.
It is truly frightening how much of people’s lifetime income is consumed in paying for their house - money that many will never see any return from.
Around here farmland can be purchased for around £5-10k per acre, if someone in one of the various authorities decide that planning is authorised that can be over £500k - time for a windfall tax?
 
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I've been looking to buy for last 6-8 months or so, I live East Sussex and budget was originally £400k

Budget is now smaller because of interest rates, but I've already seen house prices drop by 11% ... All the stuff about house prices rising since summer has not been the truth.

I think we'll see at least another 10% drop in prices.

And for once I'm a lucky one as I'm renting... But alot of people are in for a tough ride.
 

Doon frae Troon

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Very high demand for houses in my area.
Anything that comes on the market is snapped up immediately.
Hardly surprising as a £500k house in the home counties would cost £250k here,
 

SurreyGolfer

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Relatively popular area (commuter-ville Surrey), definitely seeing houses stick on the market a little longer but things are still selling as long as people aren't taking the mick, i.e. adding £50k to the asking price relative to the last comparable sale on the street
 

Matty6

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I’m in the suburbs of Cardiff and prices don’t seem to be declining where I live. Anything decent that comes on the market is snapped up in no time. I can see things slowing slightly as we get deeper into this, but my area typically hasn’t been impacted by previous market slumps. Let’s see if we can ride this one out!
 

ColchesterFC

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Definitely more properties in my area sticking around on the market for longer and many more now being reduced on Rightmove compared to 6 months ago.
 

PJ87

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Definitely need to get the market under control / reigned in a bit. It's gone crazy

We bought in 2014 and paid 300,000 for a 3 bed semi, next door sold in 2021 for 520,000 (same house) and down road was up for 750,000 other day which has had similar work to what we had done.. doubt it went for that, would say 650,000 tops

But it's crazy.

How can people get on the ladder when not even massive houses are out their price range when they do get that flat or whatever to get on the first step.

Alas need like a 25% drop in current values to get anywhere near control and that would be totally gutting to the economy let alone the poor people who have mortgages on them

Bubble always seems to survive and grow tho
 

HeftyHacker

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I was commenting to the missus yesterday about how lucky we got with our house. Got it at a low price at the right time in 2020 before it went mental. We bought for 235k and had it valued at 320k when we remortgaged in summer - which we managed to get at 2.1% before the rates rocketed.

With the good lady on maternity next year we'd have been really struggling had we been exposed to the full force of the market later next year, combined with the higher energy costs etc.

We had always planned to put ourselves under pressure for a few years to get the right house and set ourselves up for family life. But we seem to have got very lucky with timings.
 

Mel Smooth

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We're currently in a position where we are looking to either rent, or buy. 3 dogs in the household is making finding a rental property extremely challenging but we're already seeing landlords pushing rental prices up as they face higher mortgage interest rates, people just don't have the money - not up here in West Yorkshire - if they did, they would have bought years ago.
Seen a few properties we like but as I'm self employed and recently back from Spain, I have no accounts to bolster a mortgage applicaton, so we may buy something based solely on the wifes salary.
We've got a bit sat in the bank right now which is obviously benefitting from increased interest rates, but to be honest, I'd swallow a bit of a slump in property prices to get the right house for us, even if it meant we'd transition through a period where our house would be valued less than we paid for it.
I've seen houses sell recently round by us though, that aren't worth what people have paid for them - hopefully not young people that have committed to stretching themselves before the mortgage rates started to rise - they could be in bother.
 

D-S

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It’s the mortgage lenders who fuel a lot of the stupidity as well. How can you lend someone say 250k secured on an asset (with a small deposit) and then a couple of years later lend them 350k on the same asset in low inflationary times?
If borrowers could simply throw the keys back to them if prices dropped (obviously losing their deposit) and walk away easily, then the lenders would think twice about offering, with low deposits, more and more money for the same houses year after year when wages are not increasing fast.
 

PJ87

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It’s the mortgage lenders who fuel a lot of the stupidity as well. How can you lend someone say 250k secured on an asset (with a small deposit) and then a couple of years later lend them 350k on the same asset in low inflationary times?
If borrowers could simply throw the keys back to them if prices dropped (obviously losing their deposit) and walk away easily, then the lenders would think twice about offering, with low deposits, more and more money for the same houses year after year when wages are not increasing fast.

Got to love one of the ploys to keep the bubble going.. 2014 affordability checks rightly introduced to make sure people could cope with rate increases before a mortgage would pass

2022 announced they will be scrapped .. (with rates rising) to just keep that bubble going
 

road2ruin

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I was commenting to the missus yesterday about how lucky we got with our house. Got it at a low price at the right time in 2020 before it went mental. We bought for 235k and had it valued at 320k when we remortgaged in summer - which we managed to get at 2.1% before the rates rocketed.

With the good lady on maternity next year we'd have been really struggling had we been exposed to the full force of the market later next year, combined with the higher energy costs etc.

We had always planned to put ourselves under pressure for a few years to get the right house and set ourselves up for family life. But we seem to have got very lucky with timings.

We’re similar, bought in 2020 for £775k although stretched ourselves to do so as we viewed it as our family home with no plans to sell up. Remortgaged in August at 3.1% fixed for 7 years which gives us peace of mind given we have a decent sized mortgage. Our valuation was £950k although that’s just a paper number and so we’re not really fussed at the moment. We are in an area of Surrey that is less likely to be affected by price drops so we’ll just see what happens in the coming years.
 

Bunkermagnet

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Its always the same, people complaining of silly house prices when trying to buy, but when it comes to selling trying to get as much as they can.
It's no different to locals in picturesque areas complaing of second home owners, only who did those second owners buy from?.....the locals.
 

road2ruin

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It's no different to locals in picturesque areas complaing of second home owners, only who did those second owners buy from?.....the locals.

Agree, you can’t have it both ways. Locals benefitting from inflated prices and selling for a premium only to moan that locals can no longer afford to buy.
 

Hobbit

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I moved 2 years ago, selling a small semi-villa(bungalow) and buying something about double the size with bigger gardens. They’re currently selling for €165k, £146k. We’re 200m from the bowls club, and about 1km from the centre of a small town. I’d like to think it will be our last home, so any changes in prices won’t affect us.
 
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