Published: 06/01/2023House prices will fall, but higher mortgage rates are here to stay. From record property prices to soaring mortgage rates, 2022 was a tumultuous year for the housing market.
But with some degree of normality having returned after a chaotic few months, could we be set for a quieter year in 2023, or are first-time buyers and homeowners in for yet another rollercoaster ride?
Here, we look into the crystal ball and predict what might be next for house prices, mortgage rates and the rented sector.
1. Prices will fall, but there won't be a crash
Homeowners have benefitted from huge house price increases in the past few years, but the landscape looks different as we head into 2023.
Data from Halifax shows prices fell by 2.3% in November, the largest monthly drop in 14 years.
Values are likely to fall further this year. The property portal Rightmove predicts prices will drop by 2%. This downward pressure may continue beyond 2023. The Office for Budget Responsibility (OBR) predicts a 9% drop between now and autumn 2024.
2. Homebuyers may be able to get a better deal
Lower house prices might provide a boost to first-time buyers looking to get onto the property ladder.
However, the number of people moving home will be heavily influenced by the effect of cost of living pressures on households.
UK Finance predicts property sales will decrease by a fifth this year, from 1.2 million to around 1 million.
Buyers who are able to move might find that the market has shifted in their favour, allowing them to negotiate better deals.
Data from the estate agent body Propertymark shows falling demand resulted in 72% of properties in November selling below the original asking price.
3. Rates will remain higher than before
Mortgage rates soared in the last quarter of 2022, with rising inflation and the fallout from the mini-budget pushing rates on two-year fixes to a 14-year high.
Rates have now started to fall again, with some of the cheapest deals dipping below 5%. While this is good news for borrowers, these figures are still around five times the record low of 0.79% in late 2021.
There are hopes that rates will drop further in 2023 as inflation stabilises, but the speed that rates fall will be heavily influenced by any changes to the Bank of England base rate.
Even in the most optimistic scenario, it's highly unlikely that rates will return to the lows we saw a year ago.
4. Tracker mortgages could become more popular
A growing number of homebuyers have turned their attention to tracker mortgages in the past few months.
Data from the mortgage broker Rose Capital shows that the proportion of people choosing tracker mortgages shot up from 8% in October to 35% in November.
Trackers are usually cheaper than fixed-rate deals, but your monthly payments will increase or decrease depending on what happens to the base rate.
With the base rate likely to increase by a smaller margin in 2023, some borrowers may choose to gamble on a cheap tracker over the security of a more expensive fixed-rate deal.
5. Homeowners will face higher repayments
There was a huge uptick in the number of homebuyers during the stamp duty holiday in 2021, and those who opted for a two-year fixed-rate mortgage will need to remortgage this year.
Around 1.8 million fixed terms are set to end in 2023, and rates are much higher than two years ago. This means many borrowers will feel a squeeze when they are forced to refinance at a more expensive rate.
6. Borrowers will need greater support from lenders
Unfortunately, higher mortgage rates could result in more homeowners struggling to meet their repayments and falling into arrears.
This means the spotlight will be on lenders to provide support for those who are struggling. Support can include options such as term extensions, temporarily switching to interest-only payments, or temporarily pausing or reducing payments.
If you think you won't be able to make your mortgage payment, the first thing to do is contact your lender as soon as possible for advice on what measures it might be able to offer.
7. A greater focus on energy efficiency
The rising cost of living has made us all focus on energy efficiency, as we become increasingly aware of the cost of running our home.
New-build properties, well-insulated homes and those fitted with heat pumps or solar panels may become more desirable for prospective buyers this year.
We may also see more homeowners staying put and renovating their properties.
The government is understood to be considering introducing grants to middle-income households to make homes more energy efficient.
Some mortgage lenders are also offering cheaper loans for customers when they make energy-efficient improvements.
8. Demand and prices will remain high
Even if house prices fall, it'll still be the case that many people simply won't be able to afford to get onto the property ladder.
This means that the need for quality rented property will remain as pressing as before.
Greater pressure may be placed on the rental market if prospective homebuyers decide to bide their time in 2023 and transactions fall in number.
This could result in fewer properties becoming available and rents rising due to an inbalance between supply and demand.
9. Landlords could eye up cheap deals
People planning to sell their home may also hold fire this year. There might be an uptick in would-be sellers instead letting their home or flat out for while until the market calm downs.
Professional landlords may also sense an opportunity to secure bargains this year in a slower market. Figures from Hamptons show 37% of offers made by landlords in November were on properties without any other offers.
10. New rules will offer tenants better protection
A long-planned shake-up to the rental system in England is finally set to come into force this year, with the aim of offering greater protection against eviction and rent rises.
A ban on no-fault evictions is due to be implemented as part of the Renters Reform Bill. Tenants are also set to be given more power to challenge landlords who fail to meet their obligations.
The government hopes the reforms will 'redress the balance' between landlords and tenants.
The Welsh government recently implemented a suite of new measures to better protect renters against eviction.