How far will UK house prices fall? What experts say will happen to the property market for the rest of 2023
Homeowners have received the first piece of positive news in months this week as half of the country’s biggest lenders reduced their mortgage rates.
Barclays, Nationwide and TSB all announced on Thursday that they are cutting rates across their range of fixed-term mortgages, with HSBC and Coventry confirming the same this earlier in the week.
It comes after months of turmoil in the housing market, as soaring mortgage rates put pressure on house prices, leading some experts to warn a market crash is on the horizon.
Here’s what experts predict will happen to the housing market for the rest of this year:
What will happen to house prices in 2023?
Higher mortgage rates often lead to a dip in house prices. This is because the more expensive it is to borrow money, the less money buyers have to purchase property.
Mortgage rates have been increasingly steadily for over one year now. On Thursday the average rate of a two-year fixed mortgage deal was 6.83 per cent, compared to 2.34 per cent in December 2021.
This increase in rates has coincided with a dip in house prices. House prices fell 3.5 per cent in the year to June 2023, according to Nationwide.
Many housing experts agree that a bigger fall in house prices is yet to come. A report from the Resolution Foundation thin- tank published this month found house prices could fall by 25 per cent over the next five years.
Housing market expert Neal Hudson told i at the time that a fall of 25 per cent was a “possibility given current rates”.
However other analysts suggested a smaller drop of prices was on the cards.
Lucian Cooke of estate agents Savills said a fall of 10 per cent was more likely.
Will falling mortgage rates impact house prices?
While the latest mortgage news is undoubtedly positive for homeowners, experts warn that the reduction in rates is unlikely to have a massive impact on the market more widely.
This is because banks are only reducing their rates by a small amount, which doesn’t counter the massive increase to rates since 2021.
Nationwide, for example, has reduced its two-year fixed rate to 5.99 per cent, down from 6.34 per cent. This is still far higher than the ultra low rates homeowners were paying until recently.
“The changes that have been announced during the week are tiny by comparison to the increase that anyone coming off a fixed rate mortgage is going to face. It isn’t going to make a material difference to how much or how little people offer for a house. So house prices are still under pressure and will remain so for the rest of the year,” said buying agent Henry Pryor.
Mr Pryor predicts that house prices will be down 10 per cent at the end of this year compared to the end of last year.
Mr Hudson said what happens with house prices will depend on whether rates come down any further.
There is still much uncertainty over what will happen to mortgage rates over the coming months, as lenders wait to see what will happen with inflation and the British economy more widely.