Who knows what to make of the current housing market? The shockwave of Liz Truss’s now largely abandoned mini budget sent the market – and those looking to buy and sell in it – into a turbulent sense of uncertainty. Mortgage rates have spiralled, threatening new buyers and re-mortgagers alike with unaffordable monthly payments.
Such is the severity of those rate hikes that an adjustment to the market’s inflated post-COVID prices is surely inevitable, but when? For many eager to make moves on the property ladder, a sense of equilibrium is desperately required quick. But will home prices fall in the next 12 months and, if so, to what degree?
Are house prices already falling?
As per Halifax, UK house prices fell by 0.4% in October – the steepest monthly drop in the domestic market since February 2021. The decline of the average house price to £292,598 during the month is a marker of a continued easing off of house price growth, which slowed to 8.3% in October down from 9.8% in September.
The posthumous legacy of Truss’s catastrophic mini budget coupled with increased cost of living numbers against earnings have been identified as the two biggest factors causing this paradigm shift in the rate and price changes. Halifax’s report echoed similar themes to that of fellow lender Nationwide, which claimed house prices dropped by 0.9% in October.
What are homeowners doing about it?
Despite a significant enough shift in price trends in the last month, buyers and re-mortgaging homeowners are both set to be stuck with lofty interest rates for the foreseeable future.
As the rate shockwave continues to ripple through the market, many first-time buyers will be forced out of the market in the immediate and sent back to similarly inflated rentals. Those re-mortgaging, meanwhile, face an average rise of £300 on their monthly payments, with the Bank of England warning of an anticipated rise in mortgage defaults in the coming months.
For retired homeowners, the prospect of utilising an equity release mortgage offers potential cash relief as pensions drop in value. But largely, for now, those facing the need to acquire a new mortgage deal in the near future will simply have to face the realities of the new normal as best they can.
The outlook for 2023
Logic dictates that the stark hike in mortgage rates and much reduced sense of affordability to the UK property ladder will demand a revaluation of house prices. How substantial that correction of prices will be in 2023 is yet to be seen.
Predictions of price corrections extend as far as a 30% drop in the next year as per a number of economic and lending bodies. At the more conservative end, NatWest Group has forecasted a price drop of 7% by next year, with a number of other forecasts sitting in the 5-10% range.
Such a wide range of estimates is likely to be of little help for those currently immersed in the housing market. What is clear is that house prices have to and will drop in the next 12 months – whether that shift is enough to reflect reasonable affordability to first time buyers and others is currently unclear.