Buying a home in the UK is more expensive than ever. When will house prices go down?

Despite household incomes being hit by the cost of living crisis, house prices have continued to surge. But will they finally start to fall in 2023?

House prices hit record highs following the pandemic but the cost of living crisis and rising interest rates have led to falling prices in the housing market in recent months.

But with deposits still out of reach for many first-time buyers and difficulties in securing a mortgage, getting on the housing ladder is still a tricky proposition. But there are signs that prices might be starting to rise once again with Rightmove recording asking prices that hit a record high in May – an early indicator that transaction prices will follow.

Average prices reached record levels in England, Wales and Scotland in 2022, according to the Office for National Statistics (ONS).

But since then they have declined.

The average UK house price, measured against final transaction prices, was £285,000 in March 2023, the ONS found, down from £288,000 in February. However, this was still £11,000 higher than in February 2022.

Nationwide Building Society reported seven consecutive months of declining house prices between September and March. While April figures halted that run, by May prices fell 0.1% month-on-month, meaning prices dropped 3.4% in the last 12 months.


Iain McKenzie, chief executive of The Guild of Property Professionals, said: “The slowdown in house price growth continues, albeit not at the pace that some buyers may be hoping for.

“The affordability factor is a real barrier for first-time buyers, and as house price growth levels off, punitive living costs need to be addressed before confidence in buying can be fully restored.”

The affordability gap is still seeing people who want to get on the housing ladder and buy a home left disappointed.

The ONS found full-time employees in England would have to spend 8.3 times their annual earnings to buy a home in 2022 while people in Wales would have to spend 6.2 times their yearly salary.

Homes have become considerably less affordable in the last 25 years. Back in 1997 people living in 89% of local authorities could pay less than five times their annual salary to own a home. In 2022 that was true in just 7% of areas

Why are house prices so high?

The housing crisis is nothing new in the UK. Demand has outstripped supply for decades but the disruption of the pandemic has exacerbated the issue with record-high price rises following Covid restrictions.

Former chancellor Rishi Sunak introduced a stamp duty holiday to support the property market hit by lockdowns in 2020. That stimulated demand with buyers rushing to complete deals before the tax break ended in March 2021.

The move was a major contributing factor to the widest gap between supply and demand in the market since 2013, according to the Royal Institution of Chartered Surveyors.  A further stamp duty cut was introduced by Liz Truss in September 2022 before Jeremy Hunt said the cut will end in March 2025.

Since the pandemic began, a lack of affordable homes and rising demand has seen prices skyrocket.

By August 2022, a typical UK property hit a record high cost of £293,992, according to analysis from Halifax. 

That proved to be the peak with economic disruption starting to hit the house market shortly after.

The Bank of England (BoE) has been raising interest rates in recent months in a bid to cap inflation, which has soared beyond 10%.

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The disastrous mini-budget from Liz Truss and Kwasi Kwarteng in September 2022 also took its toll.

But not every commentator agrees that a shortage of affordable homes is the true driver of inflated house prices.

A report released by Positive Money at the end of March 2022 instead blamed price surges on the transformation of homes into financial assets and the loosening of financial regulation and monetary policy over the last few decades. Wider policy changes such as tax incentives, the right to buy scheme and the deregulation of the private rental market also played a role, according to Positive Money’s senior economist Danisha Kazi.

Positive Money’s YouGov poll said 54% of British homeowners would be happy for their home not to rise in value if it meant prices remained more affordable for others. 

“The prevalent narrative that house prices are out of reach for so many due to a shortage of homes fails to explain the explosive growth of recent decades,” said Kazi.

“Governments have failed to deal with the housing crisis because of a pervasive view that the public, who are majority homeowners, would be against policies that restrict house price growth. However, the evidence suggests that most people, including homeowners, support a fairer approach to housing which seeks to stabilise prices rather than letting them inflate endlessly.”

Will house prices go down in 2023?

The current economic climate is finally catching up with the housing market.

With no immediate sign of an end to the cost of living crisis and interest rates forecast to rise further, house prices are starting to fall.

But that’s not all good news for people looking to get on the housing ladder.

Rising interest rates mean significant increases in mortgages and that is already deterring people from buying properties. 

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The BoE reported that there were 48,690 mortgage approvals for house purchases in the UK in April 2023. The number of mortgages given the green light dropped 5.4% between March and April and was a quarter lower than a year ago.

The central bank has been stress testing banks to see if they can weather an economic crisis that could see interest rates hit 6% and inflation reach 17%. Part of that annual stress test also included house prices and the BoE is testing banks’ capabilities to deal with a worst-case scenario of a 31% fall in house prices.

Experts from Lloyds Banking Group predicted that house prices will fall by almost 8% in 2023 and in what the bank describes as a “worst-case scenario” could even plummet as much as 18%.

By March 2023, Nationwide reported seven months of house price falls. That run ended in April when Nationwide reported a 0.5% rise in prices.

By May prices were falling again, albeit only by 0.1% compared to the previous month.

Robert Gardner, Nationwide’s chief economist, said the housing market is likely to face “strengthening headwinds” in the months ahead, with rising mortgage rates likely to affect house prices.

“Headwinds to the housing market look set to strengthen in the near term,” said Gardner.

“Nevertheless, in our view a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape.

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once bank rate peaks.”

There have been signs that the upturn is starting.

Rightmove’s house price index tracks asking prices when properties come on the market for sale which means it acts as an early indicator of changes in the housing market. 

Rightmove reported that asking prices hit a new record high in May, reaching £372,894. That represented a 1.8% rise in a month – the biggest monthly increase the property site has recorded this year so far.

Increased confidence from sellers was behind the rise, according to Rightmove’s director of property science Tim Bannister.

One reason for this increased confidence may be that the gloomy start-of-the-year predictions for the market are looking increasingly unlikely,” said Bannister.

“What is much more likely is that the market will continue to transition to a more normal activity level this year following the exceptional activity of the pandemic years.

“Steadying mortgage rates and a generally more positive outlook for the economy are also contributing to more seller confidence, though there are likely to be more twists and turns to come.”

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Zoopla’s executive director Richard Donnell predicted that house prices would remain broadly static for the rest of 2023, citing higher mortgage rates and rising living costs for households.

The property portal said prices have fallen 1.3% over the last six months, but the rate of monthly price drops has slowed in recent times.

Zoopla analysis showed record-high rents are pushing more renters into home ownership.

First-time buyers using a mortgage made up a third of sales on the site in 2022, ahead of existing home owners using a mortgage (31%) and cash buyers (25%).

But that doesn’t mean first-time buyers are not facing challenges in saving up for a new home.

Zoopla said the first-time buyers now spend £210,000 on a two-bedroom house and £230,000 on a three-bedroom house on average.

The steep increase in prices over recent years has seen deposits follow suit.

The average deposit for a two-bedroom home is £31,500 – up £3,000 since 2020 – while a household income of £51,000 is also required – almost £5,000 more than three years ago.

For a three-bedroom home, first-time buyers must save up a deposit of £34,500 – £4,650 higher than 2020 – and have a household income of £55,900 – £7,530 more than three years prior. 


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