6 January 2023
If you are covering the Halifax house price index, please see the following comment from Karen Noye, mortgage expert at Quilter:
"According to Halifax this morning, the cost-of-living crisis continued to chip away at house prices in December with the bank recording a -1.5% drop in the average house price in December (vs. -2.4% in November). This means that the annual rate of growth dropped to +2.0%. This ends the year in a much less rosy way than we did back in 2021 when prices had been hugely buoyed by roaring demand throughout the pandemic.
"While the phrase, what goes up must come down might be apt, Halifax also revealed that over the past 40 years house prices have gone up a staggering +974% since early 1983. Therefore, while it is likely that the cost pressures associated with the current economy will cause there to be a drop in house prices in the short to medium term, when viewed through a historical lens a 10% or even 15% drop over the next few months would represents a minor blip in a housing market that has largely had a significant upward trajectory.
"That said, people will really start to feel the pinch from energy bills over the next few months and unless they simply can’t afford their bills and need to move, people are going to be much more cautious about tackling a move with all the expense that comes with it. This slowdown in the market and a potential increase in housing stock will at least during the start of 2023 likely to continue to depress prices.
"However, this week, Prime Minister Rishi Sunak in one of his first big speeches predicted inflation will halve this year. The impact of this is that mortgage rates will start to drop too. Without high inflation, the Bank of England will have less reason to keep raising interest rates, and this will feed into mortgage rates reducing. The best deals could be back to around 4.5% or 4% by the end of the year, and even lower after that assuming the direction of travel remains the same and we don’t have any other major economic or geo-political shocks.
"On top of this, a cooling housing market will mean lenders will have to compete more for business, and this will also play a part in driving down the price of mortgage deals as lenders try to entice new customers with cut price deals. In this new environment, certain mortgage products such as tracker mortgages may be a good short or medium-term option for people to consider, as fixed rate deals remain expensive. Gradually, as the economy gets back on its feet, we should resume the upward trajectory of house prices simply because the speed at which new housing is built fails to keep pace with demand, ultimately creating a situation where there is more demand than supply."
