As the UK battles a recession and higher mortgage rates, industry experts predict that the housing market will cool off sharply in 2019 after a rocky 2022.

House prices have already begun to decline month over month as the cost of living crisis has gotten worse due to soaring inflation and rising interest rates. According to Halifax, the average house price fell 2.3% from October to November, the most since the beginning of the financial crisis in 2008.

All housing indicators are flashing red as the slowdown is predicted to worsen as interest rates are set to rise and the UK enters a protracted recession.

The Bank of England is anticipated to keep raising interest rates through 2023, from their current level of 3.5% to a peak of approximately 4.75%, further depressing consumer demand.

Although some warn that in the worst-case scenario, property prices could crash by 15% to 20%, property experts predict that this will likely lead to property price declines of between 5% and 12% next year. According to the most recent data from the Office for National Statistics, house prices increased 12.6% in the 12 months leading up to October.

Mortgage rates skyrocketed to above 6% in September after Kwasi Kwarteng’s disastrous mini-budget, a level last seen in 2008. The average five-year fix mortgage rate has since dropped back to 5.6%, according to Moneyfacts, but it is still significantly higher than it was a year ago.

Next year, British banks and building societies anticipate lending 23% less to homebuyers, returning mortgage volume to its pre-pandemic level and bringing an end to a two-year boom that increased home prices by more than 25%.

According to the trade group UK Finance, gross mortgage lending for home purchases will decline to £131 billion in 2023 from this year’s $171 billion and a peak of $189 billion in 2021, when the market was stimulated by a stamp duty holiday. Property sales will decrease from 1.27 million in 2022 to 1.01 million in 2019.

Similar to buying agent Henry Pryor, the real estate company Savills anticipates an even greater decline in transactions, to 870,000, and a 10% decline in home prices in 2023. A slide, he said, not a crash. The housing market “takes forever to turn, change direction, or change speed,” as the saying goes.

Despite the fact that UK housing market crashes have been relatively infrequent, the real estate company Jones Lang LaSalle is predicting a 6% decline in home values in 2019. It anticipates a return to 1% price growth in 2024 as interest rates begin to decline and inflation is kept in check, as do Savills.

The chief economist at Nationwide, Robert Gardner, anticipates a “modest decline” in home prices in 2019. There is good reason to think that a soft landing is still possible.

While the unemployment rate is expected to increase from its current level of 3.7% to approximately 5%, he noted that this would still be a low rate by historical standards and that this could be partially attributed to people who are currently “inactive” returning to the job market amid the cost of living squeeze, rather than to significant layoffs.

About 85% of mortgage balances, according to Gardner, have fixed interest rates, and even homeowners who must refinance soon had their affordability assessed at higher rates. It will be extremely challenging, but the vast majority of people should be able to handle it.

The average monthly payment will increase by £250 to £1,000, according to a warning from the Bank of England, which will affect 4 million households. 220,000 households would experience severe financial hardship as a result.

By the end of 2023, Capital Economics expects house prices to decline by 12%, but senior economist Andrew Wishart warned that prices could fall as much as 20% in the worst-case scenario. “Compared to the financial crisis or the early 1990s, the initial decline in home prices has been more pronounced.

“For affordability to return to a sustainable level by the end of 2023, when we think mortgage rates will still be around 5%, the average house price would have to drop by 20%. On the other hand, were market and mortgage interest rates to drop faster than we expect, that would limit the fall in prices.”

The situation is different in the private rental market, where rent prices have increased to record highs due to a lack of rental properties and rising demand, in part because some prospective first-time buyers are continuing to rent in the hopes of lower mortgage rates in the upcoming year. Official data revealed that private rents in the UK increased by 4% in November, the most since records have been kept in 2016.

Wishart predicts that over the next five years, rental growth will be roughly twice as high as the pre-pandemic decade’s average, peaking at 5.1% in 2019. According to Savills, rental growth will reach 6.5% before slowing to 4% in 2024.

(Adapted from UKDaily.news)

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