HOUSE prices are predicted to continue to fall, but is a crash really on the cards?
Mortgage rates have risen dramatically in recent months and it could cause movers to pause their plans.
Generally you’d need to save at least 5% of the cost of the home you’d like to buy for the deposit, according to MoneyHelper.
With the cost of living crisis squeezing incomes for homeowners and first-time buyers alike moving house may be at the bottom of the list of concerns.
Property prices surged last year due to pent-up demand following coronavirus, a lack of homes on the market driving demand up and the end to the stamp duty holiday.
But in November, Nationwide reported that the average house price stood at £263,788 – down by £4,494 from the previous month.
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At the start of December, Rightmove reported that the average asking price dropped to £359,137 – down by £7,862 from the previous month.
Most recently, Rightmove's latest data showed that house prices rose by 0.9% – to £362,438.
This is the highest at this time of year since January 2020.
However, average asking prices are still £8,720 lower than their peak in October.
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But Nationwide – one of the country's biggest mortgage lenders – predicts prices are set to fall 5% in 2023 as the property market cools.
The drops came even after the government announced a permanent cut to stamp duty in a bid to boost economic growth.
Before the cut, no Stamp Duty was paid on the first £125,000 of any property purchase.
That's now double at £250,000 for all home purchases.
The threshold at which the duty was paid for first-time buyers was £300,000. But that is now £425,000.
The maximum value of a property on which first-time buyers’ relief can be claimed also increased from £500,000 and is now £625,000.
But property prices came under immense pressure after mortgage rates shot up following the disastrous mini-Budget and amid rising inflation which sat at 11.1% in October.
The Bank of England (BoE) also hiked its base rate to 3% in December, piling pressure on mortgage owners.
It increased its rate from 2.25% to 3% – the biggest single rise since 1989, in a bid to slow soaring inflation and encourage people to save.
But The Bank used its announcement as an opportunity to revise its predictions on how much interest rates will rise in future, and this has brought some relief to mortgage bills.
After the Mini-Budget it had warned that they would hit 6% next year, which caused mortgage lenders to hike fixed bills.
However, last month it said that rates would hit a maximum of 4.6%.
And in an unprecedented move, Barclays became the first bank to cut bills for mortgage customers on standard variable rates, known as SVRs – and other lenders then followed.
So with all this going on, what does it mean for house prices, and will there be a crash any time soon?
Will there be a house price crash?
The last time property prices crashed was during the global financial crisis.
UK house prices reached an average of £190,032 in September 2007 and had dropped to £154,417 by February 2009 – a fall of more than 18%.
They did not regain that peak until August 2014.
As we mentioned above, the average asking price on a property hit £362,438 in January, according to Rightmove.
The number of prospective buyers contacting agents is up 4% compared to the same period in 2019, and up by 55% compared with the two weeks before Christmas.
And house prices can fluctuate from one month to the next by small amounts, and based on the season, for instance, demand can drop over Christmas pushing down prices.
Rising interest rates, which have caused mortgage rates to skyrocket will mean house prices are likely to drop over the next couple of months.
And the Bank of England does expect the recent falls in house prices to continue due to higher mortgage rates.
Terry Fisher, property expert at We Buy Any Home, said: "Although the UK isn’t in a recession yet, analysts predict
that a recession is expected this year.
"Add these higher interest rates to the rising cost of
living and lack of salary growth, and it’s easy to understand why potential buyers don’t want to risk buying a new home during this time.
"In fact, as fixed-rate mortgages are at their highest in recent years, many buyers, especially first-time buyers, are being priced out of homes that should have been affordable."
He added: "A key factor for the initial spike is the strong demand surpassing the limited housing, which resulted in many homes achieving much more than their initial asking price.
"This housing supply shortage remains, however as mortgage rates are putting buyers off, the likely outcome is the prices will start levelling off instead of crashing."
Of course, no one can predict for sure what will happen to house prices, but here's what experts say is going on the market right now.
In the Office for Budget Responsibility (OBR) economic forecast it predicted that house prices could fall 9% by 2024.
The OBR expects average interest rates on the stock of outstanding mortgages to peak at 5% in the second half of 2024, the highest since 2008.
It will then fall back slightly to 4.6% by the end of 2027.
The OBR says that these predictions are just a forecast though and could change, there is still "significant uncertainty".
Tim Bannister, director of property science at Rightmove said: “The seasonal increase in new seller asking prices this January from December is particularly encouraging for movers who are looking for the reassurance of familiar trends and a calmer, more measured market after the rapidly changing and at times chaotic economic climate of the final few months of last year.
"The early-bird sellers who are already on the market and have priced correctly are likely to reap the benefits of the bounce in buyer activity, while over-valuing sellers may get caught out as property stock builds over the next few weeks and months, and they experience more competition from other better-priced sellers in their area.
"It will be important for the vast majority of sellers to remember that a drop in your asking price is likely not an actual loss compared with what you paid for it, only a failure to live up to aspirations."
But in its latest economic outlook, Lloyds Banking Group has said it expects house prices to fall by around 8% in 2023.
The banking group owns Lloyds, Halifax and Bank of Scotland and is the UK's biggest mortgage lender.
In an update to its economic forecasts, the bank said that it believes the Bank of England (BoE) base rate will reach 4% by the end of the year.
Of course, it's worth noting that predictions are just that and that no one can say for sure.
But if inflation improved and interest rates stabilise, Lloyds said house prices could fall just under 3%.
A cut to stamp duty by the government could boost house prices.
But the new government under Rishi Sunak has confirmed that it will axe the stamp duty cut from March 31, 2025.
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Our mortgage payment calculator can help you work out how much you can afford to borrow to buy a home.
And our My First Home series reveals each week how first-time buyers have got a foot on the ladder – like the two best friends who teamed up to buy a £505,000 first home.
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