House prices will fall 10% in 2023 due to higher mortgage rates, says a real estate firm

Savills has forecast a 10 per cent drop in house prices next year, a significant drop from the one per cent drop the estate agency predicted in May.

Rising borrowing costs, driven in part by successive Bank of England base rate increases throughout the year, will cause a market split between prime mortgage-dependent properties and core markets.

In the mainstream market, house prices will take the biggest hit during 2023, according to Savills, falling 10% over the year before reaching 1% growth in 2024.

By the end of 2027, Savills expects prices to grow by 5.5%, slightly down from 7.5% growth in 2026.

In its latest forecast in May, the real estate agency had forecast overall house prices to fall just 1 percent next year, before recouping losses with a 1.5 percent rise in 2024.

Discrepancy: Median home prices could fall 10% by 2023, says Savills, but the top markets (the top 10-15% of properties regionally) will see a less steep drop in prices

Top markets are broadly defined as the top 5-10 percent by value in each region and will see a smaller drop in values ​​next year and over a longer five-year period, according to Savills.

This is because buyers of these more expensive properties are less likely to rely on mortgages.

Outside London, Savills said he expected prime properties to fall in value by 6.5 percent in 2023, but their values ​​to rise by 10 percent by the end of 2027.

In the main market of central London, prices are expected to fall 2% next year before rising 13.5% by the end of 2027.

Though stark, Savills’ latest forecasts are less dour than others. Nationwide’s COO Chris Rhodes told lawmakers that in the worst case, house prices fall by a third (about 30 percent), yet his base case sees prices fall between 8 and 10 per cent in line with Savills.

In its latest home price index, Nationwide revealed that home prices fell in October for the first time this year, with the typical home worth 0.9 percent less in October than in September.

On the downside: The latest forecast from Savills and Oxford Economics sees median house prices on the resale market fall by 10% in 2023, before leveling off over the next four years

On the downside: The latest forecast from Savills and Oxford Economics sees median house prices on the resale market fall by 10% in 2023, before leveling off over the next four years

Lucian Cook, head of residential research at Savills, says: “The housing market has remained remarkably strong through the first nine months of 2022, but demand dynamics changed over the autumn with the realization that the Bank of England it would have to go faster and further to tackle inflation.

‘A new prime minister and U-shaped changes 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 effect of higher interest rates is reflected in buyers’ budgets.

“That, coupled with significant cost-of-living pressures, means we expect to see prices fall as much as 10 percent next year during a period of very reduced housing market activity.”

However, Cook added that there were mitigating factors insulating the market from a further decline in house prices.

Low unemployment numbers and increased mortgage stress tests in recent months have reduced the likelihood of a more severe recession, he said.

In addition, he added that there were signs that lenders were looking to work with existing borrowers to help them manage their family finances, which could reduce the number of forced sales.

However, a house price recovery after 2023 depends on interest rates coming down according to Savills.

A one percent rise in house prices in 2024 depends on the Bank of England base rate falling to 3.5 percent, when it is currently projected to hit 4 percent this year.

Looking ahead, Savills expects house prices to rise 7 percent in 2026 if the base rate falls further to 1.75 percent.

The data applies to homes in the second-hand market and not to new construction.

The base rate, 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 attempt to stem the rise in inflation and reduce pressure on household finances.

In its most recent increase, the Bank increased the rate by 0.75 percent to 3 percent, the biggest increase in 33 years.

However, rising interest rates have had an adverse effect on mortgage holders as lenders have passed the rise on to borrowers.

The current average rate for a 2-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 current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic..

Banks and building societies continue to lend and mortgages are still being offered and applications accepted.

However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a house?

Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for

Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.