Plan Insurance Blog

How Much Will House Prices Drop By?

Since 2009, average house prices in the UK have doubled. As interest rates rise, many prospective house buyers are asking… ‘Is the bubble about to burst?’ And if so ‘How much will house prices drop by?’

Some say the worst is yet to come

Economists from ‘Capital Economics’ believe prices will fall by 12%, but say it could be even more. Even though mortgage rates have dropped back since a peak after Liz Truss’ mini-budget, many believe they could rise further. Capital Economics’ experts believe that even if the Bank of England base rate remains stable house prices will not hold up. Evidence of this is the amount of falling mortgage approvals in October, which fell month-on-month by 7,000. Many see this as a sign of the beginning of a housing crash.

Though experts at high-street lender Nationwide don’t agree with Capital Economist’s gloomy outlook. Their chief economist Robert Gardner believes signs point to the housing market having a soft landing in 2023. There will be fewer house sales, but prices could stay at a stable level (i.e. there’s not going to be a crash), all be it at slightly below pre-pandemic levels.

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The economic outlook is bad, but the housing market isn’t doomed just yet

Gardner believes the recent weakness in the housing market could just be the regular seasonal slowdown that happens in the winter. This isn’t evidence, he believes, of an incoming collapse. We shouldn’t be too optimistic, though. Factors like falling earnings, rising interest rates and a weakening labour market will make it difficult for the housing market to regain the momentum it had earlier in the year.

The housing market will also be affected by the end of the government’s support for energy bills in 2023. Low-income households will get a reduction in their cost-of-living grants. This means less disposable income for most people and, most likely, housing prices either staying the same or going down.

What’s the outlook for the property market over the next few years?

According to estate agent Savills, the housing market will change noticeably due to expected increases in mortgage rates. House prices could fall by as much as 10% this year, with a continued but less sharp decline until 2024. By 2026, the market is expected to have largely recovered.

Naturally, the effect of this development won’t be experienced equally across the entire housing market. The upper end of the market, particularly in central London, will remain relatively stable due to continued investment from overseas buyers. First-time buyers and buy-to-let investors with mortgages will struggle to enter the market the most. As the number of buy-to-lets decreases, the supply of rental properties is likely to worsen.

Is the housing market just becoming more…normal?

Experts at Halifax Bank believe that house prices in the UK will drop around 8% throughout 2023. While this may seem relatively drastic, this will simply bring prices back to levels seen in April 2021, which is still higher than before the pandemic.

Demand from buyers has also decreased by 36% compared to the same time last year. Most estate agents and surveyors have reported fewer enquiries from new buyers. These trends will have a knock-on effect on property prices. Reduced demand means buyers have more negotiating power. While the slowdown has been modest so far, it could accelerate if interest rates rise again.

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