2023 Property forecast: Where are rates and prices heading?

By David Nicholson | Friday 18th November 2022 | 3 minute read

2023 Forecast Fortune Cookie

Spiralling UK inflation – which hit 11.1% in mid-November, rising faster than at any time in the past 40 years – has sharpened fears of an acute housing downturn in 2023, as the cost of living crisis accelerates and mortgage rates soar, with the Bank of England expected to lift interest rates above 5 per cent in the New Year.

Household energy bills rose by 27% in October, as energy costs spiked due to the Russian conflict in Ukraine, while housing demand fell dramatically in September – transactions were down 32% from the previous year – and almost a thousand mortgage products disappeared in the wake of the government’s disastrous ‘mini budget’, which threw the economy into disarray.

The outlook for 2023

Against this backdrop of chaos and volatility, how do property market experts view the likely direction of travel in 2023? 

Adam Slater at Oxford Economics argues: “The ongoing surge in mortgage rates in advanced economies threatens to push some housing markets into steep downturns. This is the most worrying housing market outlook since 2007-2008.”

In early November, real estate agency Savills predicted a 10% drop in UK residential property prices in 2023, while Capital Economics said 12%. Others are more pessimistic: consultant Graham Cox foresees a fall of up to 20% by the end of 2023.

On the other hand, some experts remain bullish. Jonathan Rolande at the National Association of Property Buyers believes some areas of the UK could still see rising house prices through next year. He admits that economic factors are creating ‘a perfect storm’, but says: “In reality, prices are actually holding firm. And in many parts of the UK, especially in the north and regions of the Midlands, prices are still going up.”

Better than 2008

Whereas in the 2008 downturn, the credit crunch left borrowers stranded, Rolande points out: “Right now, there is still money available to borrow. In 2008 there was not. Rates at 6% are more expensive, but still nowhere near previous highs of 10 per cent and more in the 1990s crash.”

He ascribes market resilience to lack of product. As the Financial Times reported: “In October, the UK stock of property for sale for each surveyor was the lowest since records began in 1978.” 

As a result, we may see more of a price freeze than a freefall. Despite repeated government promises to kick-start the housebuilding sector, new build numbers remain far below the annual target of 300,000. 

Rapid rental rises

Rapid increases in rental values mean that people are saving up deposits to buy property, says Jonathan Rolande. “We estimate there will be rises of around 5 per cent [in property values] over the next six months. Smaller rises in property prices will boost the chances of those desperate to get on the housing ladder, especially if it’s matched by government policy to support first-time buyers.”

Adam Slater at Oxford Economics agrees. “While unemployment remains low, there is a reasonable chance that price downturns could be limited, with markets instead ‘freezing’ at low levels of transactions,” he predicts.

Expert advice

So what advice do the experts have for homeowners looking to re-mortgage, or to minimise their outgoings?

Property consultant Damien Fahy points out that since the Bank of England has indicated that base rates are likely to continue rising in 2023, lenders should waste no time. “If you are in a position to re-mortgage, it will pay to act sooner rather than later to secure the best fixed-rate deal,” he argues. 

Many lenders have reduced the loan-to-value (LTV) that they are prepared to extend to borrowers, as the threat of negative equity emerges after many years. But this depends heavily upon individual circumstances and upon the risk profile of the lender. Experts advise consulting mortgage brokers, who may have access to better and more varied products than individual borrowers can find.

Bridging the gap

Equally, bridging finance providers find themselves in demand as the market cools. Besides funding investors and developers buying or building properties, they now step in to help where property purchase chains have broken.

“We’ve seen a substantial increase in demand for bridging finance in residential transactions, as rising interest rates force borrowers to drop out, breaking the chain,” says Stephen Clark at bridging finance broker Finbri. “There is still a great deal of activity in the market, especially at the higher end, where more people are cash buyers.” 

We use cookies. By using the website you agree with our use of cookies. For more information, please read our privacy policy.

Okay, got it!