Savills has forecast a 10 percent drop in home prices next year, a significant drop from the 1 percent drop the real estate agency forecast in May.
Increasing borrowing costs, driven in part by successive hikes in the Bank of England’s key rate over the course of the year, will split the market between mortgage-based and prime markets.
In the mainstream market, house prices will be affected the most during 2023, according to Savills, falling 10 percent over the year before growing as much as 1 percent in 2024.
By the end of 2027, Savills expects prices to grow 5.5 percent, down slightly from 7.5 percent in 2026.
In its latest forecast in May, the real estate agency predicted that overall house prices would fall by just 1 percent next year, before losses would recover with a 1.5 percent rise in 2024.
Paradox: Median home prices could drop 10% in 2023, Savills says, but key markets (the top 10-15% of real estate regionally) will see a less pronounced price drop.
Major markets are defined as the top 5-10 percent by value in each region and It will see a smaller drop in values next year and over five years longer, according to Savills.
This is because buyers of these more expensive properties are less likely to rely on mortgages.
Outside London, Savills said it expects prime real estate to fall in value by 6.5 per cent in 2023, but expects them to increase in value by 10 per cent by the end of 2027.
In the main market in central London, prices are expected to fall by 2 per cent next year before rising by 13.5 per cent by the end of 2027.
While Savills’ latest predictions are stark, they are less stark than others. Nationwide Chief Operating Officer Chris Rhodes told MPs that the worst-case scenario for the construction community sees house prices drop by a third (about 30 per cent), however the base case is for prices to fall by 8-10 per cent in line with Savills. .
In its latest House Price Index, Nationwide revealed that house prices fell in October for the first time this year, with the value of a typical home 0.9 percent lower in October than it was in September.
Going down: Savills and Oxford Economics’ latest forecasts suggest average house prices in the used car market will fall by 10% in 2023, before stabilizing over the next four years.
Lucien Cooke, head of residential research at Savills, says: ‘The housing market remained remarkably strong through the first nine months of 2022, but demand dynamics changed over the fall with the realization that the Bank of England will need to move faster and further to tackle inflation.
The new prime minister and shifts in fiscal policy appear to have eased some of the pressure on interest rates, but affordability will continue to come under real pressure as the impact of higher interest rates feeds into buyers’ balance sheets.
“This, combined with significant cost-of-living pressures, means we can expect to see prices fall by up to 10 percent next year during a period of significantly lower housing market activity.”
However, Cook added that there are mitigating factors that insulate the market from a larger decline in house prices.
He said lower unemployment numbers and an increase in mortgage stress testing over the past few months have reduced the likelihood of a more severe recession.
Furthermore, he added, there were indications that lenders were looking to work with existing borrowers to help them manage their household finances, which could reduce the number of forced sales.
However, a recovery in house prices after 2023 depends on a cut in interest rates, according to Savills.
A one per cent rise in house prices in 2024 depends on the Bank of England’s base rate falling to 3.5 per cent, from where it is currently expected to reach 4 per cent this year.
Looking ahead, Savills expects home prices to rise 7 percent in 2026 if the base rate drops to 1.75 percent.
The numbers apply to homes in the used car market, not new buildings.
The base rate, which is set by the Bank of England’s Monetary Policy Committee, has been rising rapidly since December 2021 when it was just 0.1 percent. In September, the bank raised the rate to 2.25 percent, in an effort to curb rising inflation and reduce pressure on household finances.
In its latest hike, the bank increased the rate by 0.75 percent to 3 percent — the largest single increase in 33 years.
However, the increase in interest rates has had a negative impact on mortgage holders as lenders have moved into higher proportion borrowers.
The current average rate for a two-year fixed mortgage across all deposit sizes is 6.46 percent, with the five-year average at 6.3 percent, according to Moneyfacts.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..
Banks and building societies are still lending and mortgages are still being accepted with applications accepted.
However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.
This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.
What if I need to re-travel?
Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.
Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.
Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I’m buying a house?
Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.
Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.
You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.
Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check out the best fixed rate mortgages you can apply for
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