18 January 2023
If you are covering the UK Government House Price Index, please see the following comment from Charlotte Nixon, mortgage expert at Quilter:
The government's UK house price index has shown that prices in November have dropped by 0.3% on average since October 2022. Despite this drop, there has still been an annual price rise of 10.3%, making the average property in the UK valued at £294,910.
As we head into 2023, the UK must brace for further house price drops as increased energy bills will still cause financial strain for millions in the upcoming months. As a result, many might be more hesitant to move and incur all the expense that comes with it. The Financial Conduct Authority (FCA) estimates that 750,000 people are at risk of defaulting on their mortgage and these people may be looking to sell up to release equity in their home and avoid getting into financial difficulty. This could lead to an increase in housing stock when demand is depressed, causing house prices to drop lower.
However, Bank of England Governor Andrew Bailey told MPs this week that while there is still a "hangover effect" from the financial instability seen during the prime ministership of Liz Truss, much of the volatility that caused mortgage rates to soar has now normalised. This, coupled with Prime Minister Rishi Sunak's recent statement that inflation is expected to halve in the next year, and today's slightly lower inflation figure, hopefully indicates a permanent change in direction for the mortgage market.
Lower inflation should mean interest rates stabilise and even start to drop with mortgage rates following suit. This could result in mortgage rates dropping to 4% by the end of the year as the new norm, and potentially even lower in the future.
Additionally, as the housing market cools, lenders may have to compete more for business, leading to lower mortgage deals for customers. This new market environment may make certain mortgage products, such as tracker mortgages, a more attractive option for short or medium-term buyers. Although a drop in house prices might come as bad news for homeowners it, this change in direction might be relatively short lived and as the economy improves, it is likely that the demand for housing will continue to outpace supply, driving up house prices in the long term.
