Are We Heading For A House Price Crash?

There are increasing concerns for the UK’s property market as it faces disruption and low interest rates, leading some to think that there could be a significant house price crash in 2023.

Halifax has reported the steepest monthly drop since February 2021, the decline in the average price to £292,598 was the third in the past four months. The annual rate of growth in house prices has decreased to 8.3% in October from 9.8% in September.

Falling Prices

Whilst monthly changes can be blips that pass, one of the biggest lenders in the UK, Lloyds, is preparing for an 8% price fall next year.

As a result of this increase, borrowing now costs more than at any point since 2008.

Falling house prices are good news for first time buyers and people who are looking at moving to a bigger home however if you have just bought a property with a small deposit, then this spells trouble.

With prices falling it means a lot of homeowners will now own homes worth less than their mortgage, leaving them in ‘negative equity’. This will leave new homeowners with two issues, having to remortgage and then if they wish to sell, they will make less than they spent.

Mini Budget Madness

The financial turmoil in the property market can be linked back to the September mini budget which sent borrowing costs soaring and resulted in the Prime Minister being replaced.

Rishi Sunak and Jeremy Hunt have responded to the turmoil by suggesting that government spending cuts and tax rises are to be expected, which Halifax believe could add to the downward pressure on house prices.

The chief economic advisor at the EY Item Club, Martin Beck, said that he expected price declines of between 5% and 10% as a result of Sunak and Hunt’s announcement on expected interest rate increases.

The director of Halifax mortgages, Kim Kinnaird, has said the mini budget is one of the many factors contributing to the falling house prices. The price of houses compared with earnings and the cost-of-living crisis have also been attributed.

She said, “While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini-budget which saw a sudden acceleration in mortgage rate increases.”

She went onto say that “While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.”