UK house prices are still expected to fall this year, even after a well-watched industry index showed that average asking prices rose slightly in February.
The average house price rose by 1.1 per cent in February, following a 0.2 per cent increase in January and a 1.3 per cent drop in December, according to Halifax.
This means that prices have grown 2.1 per cent since February 2022, maintaining the annual rate of growth for three months running. But from the last quarter to this, prices have fallen by 2.5 per cent, the bank found.
Halifax’s figures contradict several housing experts who have predicted that prices will crash in 2023, however.
Last week Nationwide estimated that prices fell for the sixth consecutive month in February and were now 1.1 per cent below where they were at the start of 2022.
What will happen to house prices in 2023?
Many experts, banks and building societies have been expecting prices to drop sharply this year after the September “mini-Budget” prompted mortgage rates to soar, leading many to predict that asking prices would plummet by as much as 20 per cent.
There were also fears that the cost of living crisis would impact homebuyers’ affordability, leading to the property market stagnating and sellers finding it harder to get a good price for their home.
Before the mini-Budget, low interest rates had propelled the housing market since the start of the pandemic: being able to to borrow cheaply makes it easier for buyers to afford mortgages.
However, since December 2021 the Bank of England has hiked the base rate on ten occassions, bringing it up from a record low of 0.1 per cent to 4 per cent today.
This is part of the central bank’s efforts to curb inflation, which hit 10.1 per cent in the year to January. But it has also kept the cost of borrowing higher for home buyers.
That has, in turn, meant that demand from buyers has fallen in recent months, which has caused the housing market to cool off.
Housing market predictions in the UK have become less dramatic since the mini-Budget, however, as mortgage rates have stabilised in the first few months of 2023.
In its recent annual results, Lloyds Bank forecast house prices to fall by eight per cent in 2023.
The property website Zoopla expects house falls of up to five per cent in 2023, while property consultancy company JLL has predicted a six per cent drop.
Meanwhile, housing expert and buying agent Henry Pryor says he expects house prices to slip slowly through the year ending 2023 down by around 10 per cent.
What are people predicting now?
Many property experts have welcomed the Halifax data as good news, but have also been cautious to say that the housing market has returned to its pre-pandemic strength.
Victoria Scholar, head of investment at interactive investor, said that improvements in the overall economic picture would see prices rise but warned that the market was not “out of the woods” yet.
“Although mortgage rates are historically at high levels, they have been coming down, helping to support demand for properties,” she said.
“The housing market, however, is not yet out of the woods with pressures from a weak economy, double-digit inflation, the cost of living crisis and the potential for further rate hikes this year from the Bank of England.”
A “strong gain” of 1.1 per cent last month may reflect the resilience of the UK economy but could also be due to mortgage rates falling back and a healthy labour market, said Martin Beck, chief economic advisor to the EY ITEM Club.
“An improving economic outlook as this year progresses may also limit how far house prices fall,” he added.
Charlotte Nixon, mortgage expert at Quilter, said it was still likely that interest rates could rise further this year and further harm affordability, however.
“Although we have hopefully passed the peak of inflation, it’s still likely that interest rates will still rise further, and the current unpredictability of the market will be concerning for homeowners who may be looking to sell their properties,” she explained.
“While this morning’s figures are slightly more positive than some may have expected, the high cost of energy and increased mortgage rates could see a return to falling prices over the next few months.”
Why do predictions differ so much?
One issue is that many predictions and house price indices work on estimating asking and selling prices based on the data available to them.
Halifax and Nationwide, for example, base their research on their own mortgage approvals, which only offers a narrow view of the market. Each building society also uses different methods to extrapolate predictions from the data.
Only a few surveys, such as the Land Registry’s UK House Price Index, are based on actual property sales rather than asking prices. As a result, it is only available on a two-month delay.
Most recently, the Land Registry said the average price of a property in the UK rose by 9.8 per cent year-on-year in December 2022 to reach £294,329, though it warned that this data may have been inflated by the stamp duty holiday, which raised prices in 2021.