UK home prices to fall, but unlikely to come crashing down

    • House prices soared by more than a quarter during the Covid-19 pandemic, but the boom has now gone into reverse.
    • House prices soared by more than a quarter during the Covid-19 pandemic, but the boom has now gone into reverse. PHOTO: BLOOMBERG
    Published Tue, Feb 28, 2023 · 05:58 PM

    BRITISH home prices will fall by less than previously expected in 2023, as a resilient job market and easing recession fears soften the blow from higher borrowing costs, analysts polled by Reuters said.

    Inflation running at multiple times the 2 per cent target of the Bank of England (BOE) has pushed it to embark on an aggressive policy tightening path, and the bank rate has increased from 0.1 per cent in late 2021 to 4 per cent today.

    Homebuyers are likely to face a further increase in mortgage rates, as the BOE will add another 25 basis points next month before pausing, a separate Reuters poll found. After years of bumper price rises, the average cost of a home is expected to fall 2.4 per cent this year, as indicated by the Feb 15 to Feb 27 poll of 19 housing market experts. This is shallower than the 4.7 per cent fall predicted in a November poll. House prices will rise 1 per cent next year on average, and 3.5 per cent in 2025, medians showed.

    “It’s likely 2023 will be a year of transition, as buyers and sellers adapt to a new era of higher interest rates, before the market returns to growth again in 2024,” said Aneisha Beveridge at estate agency Hamptons.

    UK homebuilders Bellway and Redrow reported a slight pickup in activity at the start of the year, but said that the market remained challenging, with higher loan costs and broader inflationary pressures keeping buyers away.

    House prices soared by more than a quarter during the Covid-19 pandemic, boosted by ultra-low interest rates, tax incentives and demand for more living space during the lockdown, but the boom has now gone into reverse.

    BT in your inbox

    Start and end each day with the latest news stories and analyses delivered straight to your inbox.

    Britain’s housing market experienced the most widespread price falls since 2009 in January, an RICS survey showed earlier this month. When asked in the Reuters poll how much values would fall from peak to trough, the median was 8 per cent. Forecasts ranged from 0 per cent to 17.5 per cent.

    “House prices will fall in 2023, that is for sure. But it is not going to be a disaster – and certainly not a disaster as forecast by a number of commentators,” said Tony Williams at consultancy Building Value.

    “Why? Because the No 1 variable for showing the direction of the housing market is employment – and that remains very, very good indeed.”

    While 11 of 14 respondents in the survey said that affordability will improve, the increased costs associated with buying a property means that home ownership will decrease over the next few years, said eight respondents in the poll. Only three said that it will increase.

    For those not yet able to buy a home, average rental prices will go up 5 per cent this year and the next, and 3.3 per cent in 2025, the poll found. Tenof 11 respondents said that rents would become less affordable over the coming two years, and only one held the opposite view.

    Prices in London, long a magnet for foreign investors, will witness a steeper drop of 5 per cent this year, before rising 2 per cent in 2024, and 4 per cent in 2025. In November’s poll, prices were expected to fall 7 per cent this year, and flatline in 2024.

    “London will recover more strongly in the medium term, as political unrest, economic uncertainty and returning overseas buyers hike demand,” said Russell Quirk, an independent property analyst.

    “London is seen as the jewel in any international portfolio, and that won’t change.” REUTERS

    Share with us your feedback on BT's products and services