Crash, Slide or Hike?

This year already promises to be another interesting one with plenty of opportunity alongside some unanswered questions.

Josh Woodfin / Property Journalist

rom the pandemic to the cost of living crisis, Ukraine to the supply chain, rising interst rates and not to mention politics, it feels like it’s been a never ending conveyor belt of problems for buyers, sellers, landlords and renters over the past few years. Some people have benefited, others have suffered, and everyone in the middle has a lot of questions to help ensure their next move, hypothetical or not, is the right one.

To try and unpack what’s happened so far and what might happen later in 2023, we’ll break things down into three distinct areas - Prime London, London and the rest of the country. The macro trends, movements and causes are broadly the same, but there are still stark differences in price and demand depending on the area of the country. But regardless of where you live, and what your plans are for the rest of the year, one of the biggest questions on everyone’s lips is, will there be a housing crash at some point in 2023?

Last year, in the last month of 2022, the Bank of England further increased interest rates to a 14-year high of 3.5%. Then in February they raised it again for the tenth consecutive time to 4%. This is having a material effect on the housing market, with higher mortgage prices affecting people including prospective buyers and those on fixed rate mortgages that will be looking to remortgage this year. These additional outgoings combined with the cost of living crisis will put a lot of people’s plans on hold, whether they’re first time buyers or looking to move up the ladder. And these new challenges are already having an effect on prices. The average property price in the UK fell by 2.3% in November, which was the largest drop since October 2008 or to put it another way, in the last 14 years! Meanwhile, annual house price growth also slowed from 8.2% to 4.7% in November. This led Halifax to predict a 8% decline in house prices in 2023. These changes trending down continue when we look at the numbers for mortgage approvals. In the wake of former chancellor Kwasi Kwarteng’s disastrous mini budget, approvals for purchases fell from 65,967 in September 22 to 58,977 in October, the lowest level since June 2020, according to the Bank of England.

Meanwhile, further Bank of England data estimates more than two million borrowers with fixed-term deals will need to remortgage between now and the end of 2024. The Week reports that analysts at Pantheon Economics calculated an average household refinancing a twoyear fixed-rate mortgage in the first half this year would see monthly repayments jump from £863 to £1,490.

But despite these figures, going into the new year, January has –for the moment – bucked a lot of predictions and doom mongering headlines with a stronger than usual bounce. At the start of the year many pundits had predicted a price crash or at least a significant softening in 2023, though it appears now it is more difficult to see how things will play out.

Rightmove’s January house price index reports that after two months of falls, the average asking prices have risen again by 0.9% (+£3,301), which is the biggest increase at this time of year since 2020, taking the national average from £359,137 to £362,438.

£3,301 0.9%

However, this is tempered by average asking prices sitting at £8,720 lower than their peak in October. But other positives include the number of prospective buyers contacting agents rising to 4% compared to the same period in 2019. On top of that, the 5th of January was the third busiest day ever for people contacting agents to arrange valuations. And there were even green shoots of hope in the mortgage market, with rates softening and even some sub 5% deals coming to market, which will be hugely reassuring for the first time buyer market. Tim Bannister, Rightmove’s Director of Property Science says in the report, “The seasonal increase in new seller asking prices this January from December is particularly encouraging for movers who are looking for the reassurance of familiar trends and a calmer, more measured market after the rapidly changing and at times chaotic economic climate of the final few months of last year.

However, while average asking prices did rise in January, they are still £8,720 less than their peak in October. The early-bird sellers who are already on the market and have priced correctly are likely to reap the benefits of the bounce in buyer activity, while over-valuing sellers may get caught out as property stock builds over the next few weeks and months, and they experience more competition from other better-priced sellers in their area. It will be important for the vast majority of sellers to remember that a drop in your asking price is likely not an actual loss compared with what you paid for it, only a failure to live up to aspirations.” This information should be heeded by any would be sellers. The market, like a large river, though it may be moving generally in the same direction there are often small eddies and backcurrents that can affect your property price. From locality, to the exact competing properties at the time of listing. Listen to your agents advice, especially when it comes to selling in a hyper-local market.

Price right the first time and save yourself the need to make potential reductions down the line. There is no worse pricing strategy than following the market down.

Capital In The Capital

While some broad strokes trends will be the same wherever you are in the country, London has, and always will move to its own rhythm, and this is no different when it comes to property. According to the latest Prime Central London Buyer Demand Index by Benham and Reeves, demand is down across the prime London market (£2m-£10m) both on a quarterly and annual basis, but the superprime threshold of £10m+ saw an increase in buyer demand in the fourth quarter of 2022. This last point is likely the result