House prices will fall 5% in 2023 says Nationwide

Nationwide has forecast house prices to fall 5 percent next year as activity is expected to stabilize to just below pre-pandemic levels.

The forecast from the UK’s largest mortgage bank suggests a softer landing for the property market in 2023 than others have predicted, despite the turbulent economic conditions.

The Government’s Office for Budget Responsibility predicted a 9 percent drop over the next two years, estate agent Savills predicted a 10 percent drop in 2023, and Rightmove founder Harry Hill said house prices could drop by 20 percent if the UK went into a crisis. deep recession. .

Early signs show property price growth is already starting to slow, with Halifax reporting a 2.3 per cent or £6,800 fall in November.

Robert Gardner, chief economist at Nationwide Building Society, said: “It will be difficult for the market to regain much momentum as economic headwinds set to strengthen, as real income continues to fall, the Bank of England is raising interest rates and with the broad labor market is expected to weaken as the economy contracts.

Risks are on the downside, but there is still a good chance that we could have a relatively soft landing next year, with activity modestly stabilizing below pre-pandemic levels and house prices falling slightly, perhaps by around 5%. per cent.’

In addition, while falling, mortgage rates have yet to return to pre-fall levels when they rocketed in the wake of September’s ‘mini-budget’.

On August 1, 2022, the two-year average fixed rate for all deposits was 2.52 percent, according to data from Moneyfacts.

The figure peaked at 6.65 percent on October 20, and the five-year fixed rate peaked at 6.51 percent on the same day. However, the average fixed rate for both two- and five-year mortgages has steadily declined since then.

National data shows the cumulative increase in house prices in 2022 compared to previous years

Most now expect mortgage rates to fall somewhere between 4 and 5 percent next year.

Currently the two-year fixed average is 5.8 per cent, while the five-year average is 5.61 per cent, and this continues to fall despite the Bank of England’s recent rate hike to 3.5 per cent; it is the highest level since October 2008.

However, unlike Nationwide, others believe the house price decline will run into the double digits.

Real estate firm Knight Frank expects the value to drop 10 percent over the next two years as buyers and sellers “recalculate” their options.

“Mortgage rates will eventually be at least 2 percentage points higher than this spring, meaning it could be a ‘wake up and smell the coffee’ moment for the housing market,” said Tom Bill, head of UK Residential Research at Knight. Frank.

“Higher funding costs will keep transaction volumes in check and result in more general price declines in 2023.”

Savills’ forecast in November of a 10 percent decline in 2023 was much gloomier than May’s forecast of a 1 percent decline.

However, the broker said he expects prices to rebound in 2024, rising by 1 percent — a slightly more hopeful outlook than rival Knight Frank.

Nationwide: year-on-year house price growth fell to 4.4% in November, down from 7.2% in October

Earlier this month, Nationwide’s latest home price index revealed that home price growth slowed to just 4.4 percent in November, down from annual property inflation of 7.2 percent the previous month. Between October and November house prices fell by nearly £4,500.

This 1.4 percent drop was the biggest monthly drop since June 2020 and more than the 0.9 percent drop between September and October.

Another sign of the market cooling came from Rightmove, which reported that the average asking price fell by nearly £8,000 in December, the biggest drop in nearly four years.

The real estate portal said the drop was driven by the mortgage crisis as home sellers “adjusted their expectations” in the new market conditions.

The asking price of the average home for sale is now £359,137 compared to £366,999 last month, it said.