Over the past few years, there have been many factors which have hugely influenced and affected the housing market. This year has been perhaps the most disruptive, with prices increasing then falling and mortgage rates continuing to climb. But, as we approach the end of the year, prospective buyers and sellers will likely be wondering what the market holds and whether there will be any change.
House prices have fallen for two consecutive months, with a drop of around 5%. Alongside this, sellers have also found that they have had to drop the asking price for their properties by roughly 4.2% in order to gain movement within the selling market. This data indicates that the property market is continuing to struggle.
In terms of trends, it is understandable that buyers and sellers will be monitoring the market closely to get an idea of what to prepare themselves for. With that in mind, let’s take a look at some of the current house market trends and what to expect as we approach the end of 2023.
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The current state of the UK housing market
The housing market has been in a sorry state of affairs since 2020. It has slowed as a result of the various economic challenges and the huge surge in prices which has meant that potential buyers have paused or held off on their plans while they wait for a more stable market. In the past year, the average UK house price has fallen by 1.1%, which marks the first annual decline in almost 3 years and putting prices at their lowest point since 2012. Sellers are having to decrease the cost of their homes in order to achieve a sale, with an average reduction of £14k.
House prices will continue to decrease
When it comes to forecasting house prices, no one is really sure what will happen, as it can be affected by so many factors. That being said, there are things which can be taken into account and help experts make an informed estimate. With that being said, it is expected that house prices will continue to drop towards the end of 2023. Mortgage rates are slowly stabilising which, combined with the lower house prices, means that more buyers will be looking to complete a purchase.
At the beginning of the year, Lloyds Bank expected house prices to drop by 8% throughout 2023. In February, this figure was revised based on further research and they predicted a drop of 7%. However, as the year has progressed, it is looking likely that this figure will hit 10%.
Buyers will get more leverage
The market has become much more buyer-centric, however, sellers do still hold a lot of the power. With mortgage rates rising and affordability taking a hit, sellers have shifted their expectations to match the changing market, meaning that buyers can, in turn, use more of their leverage when making offers. It’s predicted that this will last until the end of the year but is expected to become more balanced than we’ve seen in previous years.
Buyers are finding that they can buy without having to waive contingencies and sellers are also beginning to offer concessions. But, it’s important to keep in mind that sellers typically hold low-interest rate mortgages and, therefore aren’t under as much pressure to sell as you are to buy, so they can hold out for offers which they had in mind.
Although rumoured, a housing market crash is unlikely
It’s understandable that buyers, and sellers, get nervous when concerns of a housing market crash are raised. When it comes to predicting housing prices, it’s difficult to estimate whether or not there will be a market crash where house prices plummet. However, it’s important to remember that this didn’t happen with Brexit or the pandemic and there is still a large shortage of housing across the country.
Since 2021, the Bank of England has raised the base interest mortgage rate 14 times consecutively, from 0.1% to 5.25%. As a result, this saw a reduction in demand for potential buyers and led to people defaulting on their mortgage payments, thus contributing to the house price decrease we’ve seen this year. But, in the latest development, the Bank of England chose to hold the base rate at the current level of 5.25%, meaning that we may see interest rates fall quicker than we have done so far. This could make buying a house more affordable for many buyers and reverse the current pressure in regards to house prices.
Considering the difficult challenges that buyers face, such as increased mortgage payments and the cost of living crisis, a drop in house prices is expected. But, after so many years of seeing house prices increase, this is unlikely to result in a crash. A bigger concern that homeowners are likely facing is the increase in mortgage payments, particularly when these are paired with the ever-rising living costs. The housing market takes longer to experience changes in direction than people think and as there are few trigger events which typically lead to market crashes, this is unlikely.
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Sales will take longer to complete
As discussed, the rises in mortgage rates and cost of living inflation are affecting buyer confidence. As a result of this, market activity is being dominated by the requirement of needs, as opposed to wants, for cash and equity rich buyers. Sellers are not willing to accept what they see as being unrealistic offers. This means that sales are being accepted, however as a number of sellers are in no rush to complete, this is drawing out the buying process.
With a longer and more drawn-out process, this is making buyers slightly impatient and, although unfortunate, there is not much which can be done to resolve this. There have also been reports of some buyers falling victim to types of scams which revolve around house purchasing, such as Friday Afternoon Fraud and mortgage broker scams. This is because criminals are able to gain access to longer forms of communication between buyers and conveyancers as a result of the longer process.
It’s important for buyers to remember that this isn’t a common occurrence, although it is on the increase, however, it is something to be wary of and, if anything does seem unusual, then stop all communication and speak to your conveyancer in person. If you believe that you have lost any part of your deposit as a result, then speak to your bank and the police as soon as possible.