A housing market cooldown is expected in 2023 but prices will remain higher than before the coronavirus pandemic started, experts have suggested.
Some new year stand-offs may also be seen between buyers and sellers as the market adjusts – and sellers may need to be more patient as homes potentially take longer to sell.
Halifax predicts UK house prices will fall by 8% in the year ahead, although this drop would not be sufficient to wipe away all the gains made in recent years.
According to the lender, the average house price increased by 23%, or nearly £55,000 in cash terms, between March 2020 and August 2022.
To put the predicted 8% fall in house prices into perspective, Halifax homes director Andrew Asaam said: “Such a fall would place the average property price back at roughly the level it was in April 2021, reversing only some of the gains made during the pandemic.”
Surging living costs, including some mortgage outgoings, and expectations that unemployment will also rise will add to the challenges the housing market faces.
However, a continued lack of homes for buyers to choose from is expected to continue to support house prices.
Nationwide Building Society expects house prices could edge down by around 5% in the year ahead.
And trade association UK Finance said it expects the number of house sales taking place to fall to around one million in 2023 from 1.2 million in 2022.
Richard Donnell, executive director at Zoopla, said that despite the “shock” of mortgage rates jumping in autumn 2022, “banks are well-capitalised and ready to lend”.
Zoopla expects sales will be supported by buyers looking for space to work from home, an ongoing spike in people retiring and – amid high energy costs – some people moving to properties that may be more cost-effective to run than their current homes.
Mr Donnell said: “Overall, 2023 may well confound the more gloomy forecasts made at a time when the outlook for mortgage rates looked much worse.”
Rightmove predicts national average asking prices of new properties coming to market will be 2% lower by the end of 2023.
Its property expert Tim Bannister said: “Although the wider economic climate has settled a little leading into Christmas, there is no getting away from the fact that pressures on personal finances and mortgage rates stabilising at a higher rate will impact overall affordability in the market (in 2023).
“We think this will contribute to a 2% drop overall in new asking prices in the UK market.
“For context, this would only take average asking prices for new properties coming to market back towards where they were in February (2022).”
Mr Bannister said differences between “hyper-local” housing markets may become more pronounced “where one side of a city, town or even street could fare better than another, depending on the types of property available and the desirability and affordability of the exact location”.
He added: “We expect there may be a stand-off on price between buyers and sellers, particularly in the early months of the year as the tone is set for the year ahead.
“Though many buyers will feel the pinch of stretched affordability and will try to negotiate hard for the home they want, sellers may not be in a rush to meet their expectations and will feel like they can hold out for the price they want, particularly if they don’t see much competition from other sellers in their area.”
Mr Bannister continued: “We’re heading towards a better balance between supply and demand next year but we don’t expect a surge in forced sales, which would cause a glut of properties for sale and contribute to more significant price falls in 2023.
“There will be less urgency in the market as buyers wait for the right home to become available for their needs, leading to homes taking longer to sell, and we could see a return to the more normal time to find a buyer of around 60 days.”
Frances McDonald, Savills residential research analyst, said: “The legacy of the pandemic – where buyers were driven by lifestyle choices and the birth of the ‘race for space’ phenomenon – is now permanently ingrained in the UK buyer’s psyche and expected to continue to shape choices in 2023.”
Savills pointed to potential opportunities for some home buyers who may be less reliant on borrowing.
But first-time buyers relying on mortgage finance and mortgaged buy-to-let investors are more likely to find themselves less able to buy until affordability improves, according to Savills.
Estate agency Jackson-Stops said lengthy transaction times, caused in part by long chains, will continue to act as a drag on the market, making cash buyers who can move quickly the preferred buyers for 2023.
Nick Leeming, chairman of Jackson-Stops, said: “House values next year will feel much more dependent on the slightest variables, from the perfect location to pristine finishes, without the backdrop of unprecedented demand to wipe away any such compromises.
“For a seller to command the best price, they must now be aware of more choice than we’ve seen in the past 18 months, making a purchasing decision all the more discerning and negotiations likely.”
Dawn Carritt, consultant to Jackson-Stops Country Houses, said: “A bad exterior can be hard to improve but perfect interiors are fast becoming the more important asset in a market of home working and home entertaining.”