Halifax predicts 8% house price fall in 2023

Halifax is predicting an 8% decline in house prices next year.

The lender’s housing market review has forecasted that higher energy bills and rising employment will put pressure on people’s budgets and push prices down.

Its prediction remains on the low end of the scale, with other commentators suggesting drops ranging from 10% to 20%.

Andrew Asaam, homes director for Halifax, said: “As the increasing cost of living puts more pressure on household finances and rising interest rates impact customers’ monthly mortgage payments, there’s understandably now more caution among both buyers and sellers – particularly following recent market volatility – which has seen demand soften as people take stock.

“Looking ahead to next year, it will clearly be a more challenging economic environment and the housing market will continue to rebalance to reflect these new norms. Though the limited supply of properties for sale will continue to support prices, the pandemic-driven surge in demand has receded, and we’re emerging out of more than a decade of record low interest rates.”

He highlighted that unemployment is expected to rise and reach around 5.5%, which may be low by historical standards but will be challenging for many people. 

Asaam added: “While inflation as a whole may be close to or at its peak, household energy bills are likely to rise again, putting more pressure on household budgets. 

“We therefore expect that UK house prices will decrease by around 8% next year. 

“To put this into perspective, 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.”

He cautioned that there is still uncertainty around this forecast, with the trajectory for base rate, now expected to peak at 4%, and unemployment levels key to determining any future changes.

The review it was a tale of two halves for the property market this year.

It was buoyant in the first half of 2022, as pandemic-driven shifts in housing preferences and low interest rates kept transaction demand elevated, but prices flattened off from mid-year and fell towards the end as the increasing cost of living put more pressure on household finances and rising interest rates pushed up mortgage costs, Halifax said.

Commenting on the review, Tom Bill, head of UK residential research at Knight Frank, said: “Thanks to the mini-Budget, the UK housing market exists in a strange reality of falling mortgage rates and a rising bank rate. 

“It’s therefore understandable that some buyers and sellers are pressing the pause button over Christmas. More clarity should come next year as the spring selling seasons gets underway and the price expectations of sellers are properly put to the test.

“Mortgage rates will eventually settle at least two percentage points higher than they were this spring, which means it could be a ‘wake up and smell the coffee’ moment for the housing market. 

“The mini-Budget has been a distraction from the fact the era of cheap debt is ending. Higher borrowing costs will keep transaction volumes in check and result in more widespread price declines in 2023, with values expected to fall by 10% over the next two years.”