House prices predicted to fall by 5% in 2023

The UK’s house prices are set to fall by 5% next year on the back of rising mortgage interest rates, says Zoopla.

The platform says the increase in mortgage rates represents the largest interest rate shock for new buyers since the late 1980s.

And, despite signs of slowing, mortgage rates will not return to the ultra-low levels of recent years with rates of 4-5% set to become the ‘new norm’ with buyers needing to get used to these new rates.

Zoopla’s forecast follows that of Lloyds Banking Group which said that house prices will drop by 8% and then stagnate for the next four years.

House price growth stands at 8.1%

Now, Zoopla says that house price growth stands at 8.1% and this is being driven by the strength of demand and sales agreed over the last six months.

The ongoing shortage of supply is also propping up prices.

The platform says that while it is unlikely, sustained 6% mortgage rates would lead to double digit price falls eroding the ‘paper’ gains achieved over the pandemic.

They say that it is more likely that prices will fall by up to 5% over the next year, meaning the average UK property would lose eight months of capital gains with London (13 months) set to see the biggest loss of value, and Wales the least (6 months).

Drop in new buyer interest over the last month

The drop in new buyer interest over the last month has been spread across all UK markets as limited buyers with cheap mortgage offers remain, with the biggest drops in new buyer interest in the South East (-40%) and in the West Midlands (-38%).

Falls in buyer interest are also evident in more affordable regions such as the North East (-20%) and Scotland (24%) but to a lesser extent.

This also coincides with an increase in asking price reductions – almost 7% of homes have seen the asking price reduced by at least 5% – an increase in comparison to recent months, but still below 2018 levels.

And as the market remains turbulent, fall-throughs in sales are increasing, mainly because of a lack of affordable finance impacting buyer affordability.

However, the market is still on track for up to 1.3m sales in 2022, down from 1.5m in 2021.

‘The Christmas slowdown has come a month early’

Richard Donnell, an executive director at Zoopla, said: “New buyer demand has dropped quickly in the face of higher borrowing costs, it’s like the Christmas slowdown has come a month early.

“We don’t expect to see any impact on pricing levels between now and December and this will only start to materialise in early 2023.

“It takes several months for pricing to adjust in the face of weaker demand.”

He added: “The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4% with a modest decline in house prices of up to 5%.

“The labour market remains strong and the supply of homes for sale is below average creating a scarcity of homes for sale that will support pricing.”

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