Property Price Expectations For 2023

Written on 13 December 2022 by Nicholas Mendes

Property Price Expectations For 2023

The time of year has come when I reflect on my previous year's predictions and try to forecast what 2023 may look like. Previous predictions are broadly in-line with how the market stands today. I anticipated property prices to continue to increase with a slow-down in Q4 as mortgage rates and inflation began to postpone thoughts of any home moving plans from homeowners which have also fed through into property prices. Although no one could have predicted rates increasing to the level they did following the mini-budget, the good news is that with a new government in place the markets have continued to react well with a steady predictable PM and Chancellor at the helm.

Market conditions during 2022 haven’t made things any easier for First Time Buyers (FTBs) or homeowners considering moving. The 2021 Stamp Duty Holiday, allied to low mortgage rates, fuelled the property price boom, putting more FTBs out of reach of home ownership; costs of living increases and wages not increasing in-line with inflation have put pressure on lenders to ensure their affordability calculations take this into account with the consequence of higher rates to ensure mortgages remain affordable over the term of the loan.  The result is that some have found they cannot borrow the same amount as previously expected or, as rates have virtually tripled in the past 12 months, have had to review how much they borrow to ensure they can afford the mortgage.

With inflation now looking to have reached the peak, and expectations that this will decrease in 2023, together with a new fiscal policy, mean there are reasons for optimism for the next year. Markets have now settled; we are continuing to see SWAP rates decrease; and we are not expecting to see Base Rates of 5 or 6% that had previously been forecasted but expectations of 4% to 4.5% in 2023 before falling slightly.

Mortgage rates have also continued to reduce and we anticipate this continuing into 2023. So, although we expect completions to drop from last year's Stamp Duty Holiday-fuelled bonanza, we are still likely to see completions in-line with pre-pandemic levels.

House prices are expected to take a dip across the UK during 2023 (naturally some locations will see higher discounts than others) as mortgage rates and uncertainty around property prices continue to be highlighted.

For example, Nationwide’s house price index highlighted the average house price fell by 1.4 per cent month on month in November, marking the biggest drop since June 2020, meaning the average house price in October was £268,282 but this fell by nearly £4,500 this month, down to £263,788 in November.

We have also had the OBR (Office of Budget Responsibility) predictions of house prices falling by around 9 per cent between the end of this year and September 2024. EY ITEM Club, which uses the Treasury's forecasting model, similarly expect property values to drop 10 per cent next year. 

With sellers now looking for a quick sale while property prices are expected to reduce in the months ahead, there seems to be a growing confidence that buyers can now negotiate with the seller to get a better deal, rather than meeting the asking price or miss losing out to other buyers as has often been the case for much of this year.

Uncertainty for homeowners and FTBs will naturally be at the forefront of minds, as well as potentially sellers. As a result, we don't expect to see the same level of properties coming on to the market.

Our expectation is that the economy will be in a recession imminently – once we get the growth figures from the last QTR of this year, which will be in early 2023. With any recession homeowners tend to hold back any plans to move and look to remain in situ while they wait and assess their options. With a lack of demand, property transactions also tend to reduce, resulting in a dip in property prices.

UK Finance: Mortgage Market Forecasts 2023/24 estimate that 1.8 million homeowners are due to refinance next year and will be subject to higher borrowing costs which could prompt many with mortgages finding them increasingly unaffordable, triggering an increase of properties on the market which, in turn, could further reducte prices.

So where does this leave me for 2023 predictions?

Undoubtedly, we expect to continue to have conversations with homeowners worried about mortgage affordability and options. I would continue to encourage homeowners approaching the last year of a fixed mortgage deal to speak with a broker or lender. We are also starting to see lenders increase their product transfer period, meaning those coming to an end of a fixed rate can arranged a new deal earlier than the typically previous 3 months window.

First time buyers may have lost a scheme in Help to Buy, but there are plenty of alternative options to support getting onto the property ladder, for example joint borrower sole properties and the Family Assist mortgage which use a partner’s deposit or home to secure a 100% LTV mortgage and other similar scheme. I will also encourage FTBs to buy if they find a property that fits their budget, and not try to guess when the market will bottom out. Property prices can dip, although the long-term, historical trend is that they increase, and this should be seen as a long term investment.

And lastly property prices: I expect that we will see a dip in prices and that will range between 7%-10% next year.

Category: Nicholas Mendes