You may have noticed that house prices are starting to fall, as rising interest rates have made mortgages even more expensive and high inflation has also reduced people’s spending power. There is talk of mortgage interest rates hopefully stabilising soon. The question is, how will this affect house prices?
Prices really rose by around 25% across most of the UK from the beginning of 2020 right up until Autumn 2022. We are seeing that some house prices have risen by up to 60%!
Since that peak they have fallen by more than 4% according to Nationwide and their March 2023 figures. These figures take into account peaks and troughs, and show the biggest fall was in Scotland and the smallest fall was in the West Midlands.
Over in Northern Ireland house prices still haven’t returned to levels seen before the 2008 global crisis. In contrast London and the South East of England saw prices recover quickly right up until 2015. Then we saw less growth during the pandemic which saw many people relocating to cheaper areas.
So if house prices fall, what happens next? The people who it effects the most are those wanting to move, such as first-time buyers, people downsizing, people upsizing or people relocating. A lot of sellers will delay putting their homes on the market. Some people even consider not moving at all if they have less money to spend, especially with the cost of living crisis. Some people are choosing to stay put and adapt their current property, such as by making improvements or extending, thinking this is a cheaper and more practical way of managing the current situation.
Unfortunately, asking prices have not yet fallen enough to balance out the increased cost of interest rates. This means that first-time buyers are much more unlikely to be able to get a home in the short term as it’s simply not affordable. Long term ideally we need to see wages and income increase a lot faster than we see house prices recover. This way housing will become more affordable for all. Another thing to consider is if housebuilding can keep up with demand!
Will house prices crash?
Lloyds is the UK’s leading lender says there will be around 7% fall in 2023. It’s predicted that prices will fall by around 10% over the next 2 years! This should see prices back where they were at the end of 2021. Of course these are all predictions & anything can change. We still don’t know what will happen with interest rates & lending but hopefully interest rates will stabilise. The rates offered for fixed-rate mortgages have already come down from their peak. Interest rates are still higher than they were about year ago, which has hugely affected the market. The little rise of new mortgages that we saw in February 2023 hasn’t undone the sharp falls that we saw at the end of 2022. Around 100k households come off a fixed price mortgage each month, they will be hit with higher rates. Some home owners are finding their new monthly payments unaffordable alone ad that’s without the cost of living soaring, electricity, gas, food etc! This might encourage a little shift in the market as some people might be forced to downsize or decide to so all their money isn’t tied up in bills. This could push prices down.
There’s a huge issue with supply & demand. For properties which is another reason prices have been affected. Some say demand is likely to cushion the blow, meaning house prices could fall rather than crash.
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