Four experts share their outlook on rising rates and sinking house prices
With an extremely turbulent 2022, many experts have now turned their attention to the year ahead and what it may bring.
House prices began to decline toward the back end of last year, and market experts believe they will continue falling throughout the year ahead – with one market insider warning that UK house prices could drop by up to 25%.
The Bank of England’s attempts to tame inflation through interest rate hikes was also a key theme last year, of course. And once again our experts believe rates will continue to rise, at least to some degree.
A rollercoaster ride for house prices
Samuel Mather-Holgate (pictured), independent financial adviser at Mather and Murray Financial, said rates will continue to increase, but at a more gradual rate than seen in 2022, until late Spring.
“The Bank of England base rate will top out at 4.25% and then it will sit and linger there for much longer than necessary, keeping downward pressure on house prices,” he said.
Mather-Holgate believes that, as a result of this, the housing market will suffer. He expects to see localised falls of up to 25%.
However, he said that by the end of the year the market will have recovered and it will conclude at 10% down annually.
“The government needs to intervene as the system has been broken for decades; not enough new affordable houses are being built,” Mather-Holgate said.
Given the chaos in Downing Street however, he does not expect to see much meaningful intervention.
A ‘natural correction’ for house prices
“As per our Annual Research Report, we are expecting further increases in interest rates up to 5%, until we reach a point at which the Bank of England has inflation firmly under control,” said Alastair Hoyne, chief executive at Finanze.
Hoyne added that he expects house prices to fall throughout 2023 as demand slumps due to several factors, including but not limited to a drop in mortgage approvals and sellers being forced to settle below their asking prices.
He believes affordability will continue to be a driving factor in the fall of residential property prices in the coming months.
Across the UK, he predicts house prices to drop by 10.98% over the year, with the largest fall in London at 15.40%.
“I also believe that the market needs a natural correction and therefore should be allowed to operate independently of government support for the most part; although some consideration is needed for first-time buyers,” he added.
Read more: Home loans for first time buyers in the UK
A beneficial correction?
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, believes that house prices are not so much falling, as returning to the levels seen pre-pandemic.
Taylor-Barr said he is expecting a correction in house prices, which he believes will actually be a benefit to the market.
“Despite fixed rates continuing to soften, I think we will very soon be reaching their new base level,” he said.
However, Taylor-Barr does not expect rates to fall to anywhere near the level seen a year or so ago, especially given that the Bank of England is widely expected to need to raise the rates further to curb inflation.
The Help-To-Buy scheme comes to a final close in 2023, but with no direct replacement yet being announced, Taylor-Barr said he would expect pressure for something to be launched.
“The question is, does the government have the bandwidth currently to deal with that, on top of all the other current priorities,” he added.
Mortgage rates under competitive pressure
Kylie-Ann Gatecliffe, director at KAG Financial, said that before 2023 began she had expected a slow start. However, based on the amount of enquiries she has received, Gatecliffe said it is clear a lot of people are still looking to get on the ladder this year.
Gatecliffe added that she has seen lenders reducing many mortgage rates in recent weeks, and she thinks even with another bank rate increase, lenders will be trying their best to remain competitive.
“I do believe house prices will reduce by around 10% this year – which the media is painting a picture of this being absolute doom and gloom. However, I see this as simply a correction to take us back to how the market looked pre-pandemic,” she said.
This market correction, Gatecliffe said, will be welcomed by a lot of first-time buyers who have struggled to get on the market due to rising prices and bidding wars.
What do you believe will be the major themes throughout 2023? Let us know in the comments below.
