The past couple of years have seen house prices increase significantly, with the average UK home reaching multiple all-time highs throughout the course of 2021 and 2022.

As the UK House Price Index from the Office for National Statistics (ONS) shows, average prices reached an all-time high in November 2022 of £295,608.

However, rising interest rates in the UK led to an increase in the cost of mortgages in 2022. As reported by the Times Money Mentor, the average interest rate on a mortgage peaked at 6.55% at the end of October 2022.

Although this softened to 5.3% for the average two-year fixed-rate mortgage as of February 2023, this may still be significantly higher than what mortgage holders were paying previously.

Often in these circumstances, this leads to a softening in house prices, as fewer individuals seek to take on mortgage debt at higher rates – indeed, as the ONS data shows, average prices had already dipped to £294,329 in December 2022 when data was last available.

This can be observed in the current market, too. According to Zoopla figures published in MoneyWeek, homebuyers have been knocking as much as £14,000 off house prices in what’s now considered to be a buyers’ market.

This could be a concern for you, whether that’s over your home or property you own as an investment.

So, what could that mean for the housing market for the rest of this year? Could house prices be yet to fall dramatically? Or will the market recover to continue growing over the coming months? Find out what the experts are saying.

Office for Budget Responsibility forecasts a fall of 9%

A good starting point for trying to assess where the market could be headed is by looking at the Office for Budget Responsibility (OBR) housing market forecast.

The OBR, which is an independent financial watchdog for the UK’s finances, has predicted a fall of 9% by Q3 of 2024, a somewhat concerning figure – although they also forecast the market to start recovering again in 2025.

Equally, it’s also worth considering the OBR’s “percentage-change” predictions, looking at how the watchdog thinks prices will behave compared to the same time 12 months earlier.

These figures make for interesting reading, citing movements of:

• 4.5% in Q1
• 0.9% in Q2
• -3.9% in Q3
• -6.1% in Q4.

So, while the OBR has forecast a fall to come, it possibly won’t be until the latter part of 2023 when we see prices fall below the same point from last year.

Major lenders are conflicted over how far the market could fall

With the OBR’s forecast in mind, it’s also worth looking at what some of the major lenders are saying for what they think might happen this year.

Generally speaking, most lenders are following the OBR in the prediction that prices will fall, although there’s little consensus as to how far this might be.

On the more positive end of the spectrum is Nationwide chief economist, Robert Gardner, who predicted that 2023 could still see a “soft landing” for the housing market, with prices falling by around 5% to just below pre-pandemic levels.

Meanwhile, the Evening Standard reported a “warning” from Lloyds Bank that prices could fall by 7%, citing concerns over customers struggling to pay their mortgages.

Santander has taken an even more negative outlook, also according to the Evening Standard, forecasting a 10% plunge this year.

Somewhat between all of these other forecasts, the Times Money Mentor reported on Halifax’s prediction that prices would fall around 8% this year – although the lender also noted that a fall like this would take prices back to levels last seen around April 2021, still significantly higher than before the pandemic.

As ever, you should always take house price predictions with a pinch of salt, as no-one ever knows exactly how the market will behave.

Certain areas, such as prime central London, could break the mould

Despite the broad-stroke expectations of many experts and analysts, there may be certain areas that will behave differently this year. For example, one area that often breaks the mould is prime central London (PCL).

According to one chief executive of a prime property mortgage broker reported by FTAdviser, the lack of supply and continued high demand for this market could help it remain robust, even in this potentially difficult year for property prices.

They also noted the value for buy-to-let (BTL) landlords in this area, citing figures from estate agency Knight Frank that show rental yields in the area to have increased by 17.8% in 2022, and 26.7% above the five-year average in November of the same year.

Savills estate agent has taken a similar view of the PCL market, forecasting a -2.0% fall in 2023, with a five-year forecast of 13.5% growth.

With PCL somewhat insulated from the issues facing the market as a whole, it could mean that prices for properties in this area will be less affected.

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Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home.