Will house prices rise or fall in 2023? Expert property forecasts

Rising mortgage rates and cost of living struggles look likely to push prices down next year, with some predicting falls of up to 15%.

There are few subjects that cultivate such passionate and frenzied debate as the housing market.

As a nation, Brits are seemingly obsessed with bricks and mortar, and more precisely what our homes are really worth.

And after a tumultuous few months, it seems likely that when it comes to house prices, 2023 could be a rocky 12 months.

So why are the prospects so tricky? And what sort of house price changes are we likely to see this year?

Rising mortgage rates

It’s been a strange couple of months for the property market, which has borne the brunt of the chaos that followed the mini Budget.

The expectations that the Bank of England would have to hike Bank Base Rate quickly following that particular announcement from then-Chancellor Kwasi Kwarteng had a big impact on the mortgage market.

Mortgage lenders of all shapes and sizes moved almost immediately to pull all of their products, and to hike the interest rates charged on those deals significantly.

Now, it may be that lenders overreacted somewhat.

That is certainly the view of some within the property industry, who point to the fact that since then lenders have been gradually reducing those elevated interest rates.

But the fact is that borrowing right now is going to be noticeably more expensive than just a couple of months ago.

Denting demand

Even in the best of times, the prospect of having to pay more for a mortgage will have an impact on demand for housing.

But we certainly aren’t in the best of times, with the incredible rate of inflation putting household finances under extraordinary pressure.

With the cost of seemingly everything rising at such a rapid rate, our incomes are being severely stretched.

And because of that, plenty of would-be buyers are putting back their plans to get on, or up, the housing ladder.

They don’t have the room in their budgets for the likely higher costs of a mortgage, while it has also become more challenging to pass lender’s affordability checks.

What about Stamp Duty?

One of the few announcements from the mini Budget that survived the collapse of the Truss Government was the change to Stamp Duty.

Kwarteng had raised the threshold at which you start to pay Stamp Duty on property purchases from £125,000 to £250,000, and while there is now an end date for this tax break of March 2025, there’s still plenty of time to take advantage.

Ordinarily, you might expect such a tax cut to boost demand in homeownership even further, and should the economy stabilise this year then it may well be the case that it does so.

However, for now the tax break is almost an afterthought with potential buyers more preoccupied with the prospect of securing a mortgage they can actually afford.

How far will house prices fall?

So what can we expect from house prices this year and beyond? Here we have collected the predictions from a host of market observers for what may happen to house prices in 2022.

There is a big difference between a 1.2% drop and a 15% one, after all.

But there is consensus that house prices are only going in one direction, and that’s downwards.

A question of context

For some, the prospect of a substantial fall in house prices is something to celebrate.

It’s precisely because houses are so expensive that people might struggle to move up the ladder, or even get onto it in the first place.

And there’s certainly some truth to that, though I’m not sure I would be celebrating the return of house prices to ‘reasonable’ levels just yet.

While house prices look set to drop to some degree this year, that comes off the back of a couple of years of house price growth that has been little short of staggering.

If anything the pandemic supercharged house price increases ‒ according to the Office for National Statistics, back in February 2020 the average house price stood at a little over £230,000. Today it’s at more than £296,000, a bonkers rate of growth in just a couple of years.

Sure, house prices could fall 15% this year, but they would still be substantially above pre-pandemic levels, with prospective buyers facing much higher borrowing costs if they try to go ahead with a deal.

Only time will tell the degree to which demand drops, and the impact it has on house prices.

But the underlying issue behind the incredible growth that we have seen for years now is our shortage of homes, and that isn’t being addressed by the anaemic rate at which we are building new properties.

So if and when the economy returns to a more even keel, and those hoping to buy start to look seriously at the market again, don’t be surprised to see house price rises that rapidly wipe out any falls that take place this year.