House prices fall for 5th month

Average UK house prices have decreased for the fifth straight month in January. The average price of a UK house in January was £258,297, which is a decrease of 0.6% compared to December 2022. The recent housing market slump comes off the back of an unprecedented price rise during the COVID pandemic.

Which areas are experiencing the biggest declines?

Not all UK regions are experiencing house price decreases the same. The National Building Society states that East Anglia is the worst affected by declining property valuations, along with Yorkshire and Humber and the Midlands and the south coast. Scotland is stated to be the least affected.

Why are UK house prices falling?

UK house prices have decreased because the demand and competition to buy property have also decreased.

So, why has the property demand decreased?

Competition for property has decreased because repaying a new mortgage loan has become much more expensive, which has a direct relationship with how much the banks are willing to lend home buyers. If prospective buyers can no longer borrow as much, the amount they can offer to buy a property also decreases.

But why have mortgages gotten more expensive?

Banks are charging more interest on new mortgage deals because the Bank of England has increased the base rate of interest to try and combat inflation and soaring living costs. Increases to the base rate mean banks have to pay more to borrow money, and the banks pass this expense on to its customers wanting to borrow money, such as home buyers.

Will house prices keep falling?

The big question on prospective buyers' and sellers’ minds is what will happen next? Will property prices keep falling over the coming months? The consensus is yes. Lloyds Bank has precited house prices to fall by 8% during 2023, whereas the Office of Budget Responsibility (OBR) precited that house prices will fall by 9% over the next two years.

What are the consequences of falling prices?

Decreasing house prices may sound like good news to buyers, and indeed it can be. If property value has declined, you might enter the market at the right time and secure property for less than it would have cost during the pandemic boom. But on the other hand, there may be fewer properties to choose from.

This is because home sellers might delay putting their property on the market while prices are declining. Sellers could try and wait for the value of their property to increase before marketing their property for sale.

Will there be a housing market crash?

Multiple sources don’t predict a housing market crash like the one experienced after the 2008 financial crisis. These sources cite the tighter mortgage regulations and stress tests that are used today, which weren’t as sufficient during previous periods of high inflation and increasing mortgage repayments.  

March 2023