Predicting what’s in store for UK house prices has been difficult for many sellers and buyers over the past few years, not to mention the mortgage brokers trying to best navigate and help their customers.
Since the pandemic, house prices have soared and in October 2022, the average two-year fixed rate hit 6% for the first time in just over a decade. The Bank of England has hiked interest rates 9 times since December 2021 to tackle inflation, however, this huge increase made borrowing more expensive, and many people are finding they are refused mortgage approvals due to this.
The Bank of England base rate meeting on 2nd February determined another 0.5% increase, upping the base rate to 4%, which could potentially lead to a dip in house prices, due to a hike in mortgage costs, but let's look in more detail at what 2023 has in store for house prices.
What has happened to the UK mortgage industry?
Higher mortgage costs, due to the rise in interest rates have meant that borrowing has become more expensive, and many buyers are finding they can no longer afford properties they once could. It’s thought that between October and November 2022, the number of UK mortgage approvals fell by 20%.
Due to this, there has been a shift in the types of mortgages borrowers are buying. With fixed-rate mortgages being the more popular choice in previous years, October 2021 saw the cheapest fixed-rate deal at just 0.84%, now the same deal is at a massive 4.74%. Tracker mortgages have seen increased interest due to this. Typically starting cheaper than a fixed-rate mortgage, with the best 2-year deal at around 3.74%.
How has this affected UK house sales?
There has been a huge shrink in demand for borrowing in recent years, due to the increased expense, and with this, sellers are being forced to drop the asking price of their homes to make them more affordable for buyers.
First-time buyers are generally seeing less favourable deals, with access to rates of around 5.24% for a two-year fixed-rate mortgage, which means that they are less likely to enter the property ladder, further shrinking demand. These factors are making sellers rethink putting their property on the market altogether and even though buyers may be getting a better deal, they still have huge interest rates to deal with each month in terms of mortgage payments.
Will house prices rise or fall in 2023?
It’s expected that house prices will fall in 2023. As mentioned previously, demand is shrinking which is forcing sellers to drop their asking price. Experts predict that property valuations will drop around 8%, roughly the level it was back in April 2021, with living costs, mortgage outgoings, and predictions of a rise in unemployment, adding to the challenges the housing market faces.
This fall in house prices could lead to less urgency in the housing market and a longer time for sales to be made. This is mainly due to money being tighter for buyers. Buyers will want to look around and take longer to ensure that the decision is exactly right for them, and sellers may take longer to accept so they can ensure they sell their homes for the right price.
How will mortgage rates be affected?
Mortgage rates have risen due to the rising base rate, and it is expected that homeowners may pay around £588 more a year on average. The Office of National Statistics found that on a £300,000 mortgage, homeowners could be paying up to £661 a month more once their current fixed-rate deal comes to an end, resulting in a rise of around £250 per month. Mortgages coming up for renewal in 2023 are likely to be fixed at rates below 2%, which will be a huge jump to the current 2-year fixed rate currently at 4.74%.
The consensus for the whole of 2023 however, is that mortgage rates will gradually decrease, this is mainly due to lenders pricing in higher future interest rates in response to the September mini-budget last year. Rates have slightly reduced with a reversal of the measures put in place at the mini-budget but many lenders are still reviewing their prices.
How a mortgage broker can help in times of uncertainty
Throughout the uncertainty of house prices and mortgage rates and the impact this will have on homeowners, buyers, and sellers, we feel it's necessary to offer as much certainty as we can to give you a steady footing when it comes to mortgage finance. If you are concerned about your rising mortgage or are unsure where to start in your search for the next one, then TaylorMade can offer independent, friendly, and helpful advice to steer you in the right direction.
