UK House Prices to Fall – But Five-Year Forecasts Look Bright

UK house prices are set to fall in 2023. Beyond that, though, the picture is a little brighter, with five-year forecasts reaching as high as 11.7% in several UK regions.

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After years of boom, 2022 was the year when the party ended for the UK housing market. With interest rates on the rise and inflation near double digits,  UK house prices are expected to take a dramatic fall in 2023. The question for anyone looking to buy or sell is exactly how far they will fall and when things might recover.

Mortgage approvals are falling sharply, inflation has hit double figures and interest rates have hit 15-year highs. With this, experts are predicting UK house prices to fall by as much as 10% in 2023.

This is dismal news for the UK housing market—but it shouldn’t scare investors out of the property investment arena. Savills predict house price growth to bounce back in 2026 with a growth rate of 7%, followed by an increase of 5.5% the following year. From 2023 to 2027, house prices are expected to appreciate by 6.2% in total.

Several regions will see double the UK average house price growth. In the North West, Yorkshire and the Humber, and the North East, prices are expected to climb as much as 11.7% over the next five years.

Therefore, UK property investment remains an attractive venture for those taking a long-term outlook.

Inflation to fall

The big problem for homeowners has been inflation. The Bank of England’s knee-jerk reaction to rising inflation has been to hike up interest rates. As such, anyone on a variable rate mortgage, or who is coming to the end of a fixed rate term, is facing spiralling costs.

However, inflation is likely to fall in 2023 regardless of policy-making. 2022’s double-digit inflation surge has been caused by a combination of factors. All of these have already been priced into the economy meaning price rises should be on a much shallower line in 2023. The result: a sharp decline in inflation from the middle part of next year. In two years’ time, the Bank of England expects it to be back near its 2% target.

Whether or not this will have had anything to do with the BoE raising interest rates is something economists will debate. The reality is that falling inflation will give the central bank plenty of leeway to reduce interest rates, kickstart the economy and make life easier for home buyers.

High employment

When trying to second guess the severity of this downturn, many experts will look back to the previous crunch of the 90s. Back then a significant driver was high unemployment, but that’s not the case today. Employment remains high—even if those in work are struggling to make ends meet.

That points to a somewhat milder recession than in the past. It suggests a faster rebound and means there will still be a good supply of people looking to buy when market volatility subsides.

Strong demand

While the cost living crisis is making life harder for buyers at the moment, demand is still high. With UK house prices expected to fall, many of those who might be in a position to buy will be holding their fire and waiting to see what happens. As prices slip back and interest rate pressure eases, they will be ready and waiting to get back into the market.

In the long term, then, the housing market is not in as dire a state as one might have thought. Nevertheless, 2023 will be tough. High interest rates, uncertainty, and affordability issues will keep many people out of the market for the time being. Prices could fall by double digits over the course of the year, but five-year forecasts look promising and buyers should continue to look ahead.

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UK house prices to fall before rising