What lies ahead for house prices in the final months of 2022 and in the year ahead? According to Hamptons, the short answer is: a slowdown, and possible falls in prices if interest rates rise more rapidly than forecast. But, despite the challenging economic outlook, the chase for the dream family house is likely to continue, as some buyers sense a long-awaited moment of opportunity.
The performance of the market in the first half of 2022 has confounded all expectations, with double-digit increases in property values. But the mood is fast turning more cautious, as consumers brace for the impact of higher mortgage rates and surging energy and supermarket bills.
Aneisha Beveridge, Hamptons head of research explains that these costs will limit the amount that people can borrow. They may also be forced to run down savings set aside to fund house deposits to meet their outgoings.
Hamptons is forecasting that, if the Bank of England base rate peaks at 2.5% in 2023, the average house price may remain unchanged on its level of the fourth quarter of 2022.
But should rates be raised further, as the Bank battles to curb spiralling inflation, then declines in prices are possible. Beveridge comments: “The Midlands and the North, where tempo has been most lively in 2021 and in the first half of 2022, are most vulnerable.”
But Beveridge also highlights factors that will support the market: "We should remember that as many as 54% of homeowners own their home outright - without any mortgage. Plus, homeowners who do have mortgages faced really tough affordability tests when they applied for finance.”
She adds: “The labour market is also tight. It was unemployment that caused so many forced sales during the financial crisis 0f 2008-2009.”
Mary Beeton, Hamptons Head of Sales, says that for most, 2023 will be a period of staying put, as the cost of living crisis bites. She comments: Logic dictates that many people will hold back, conserving their cash to make sure that they can cover higher bills. Those who’d been thinking of looking for a new home may press pause. On the other hand, the prime market in particular may weather the storm better than most given more homeowners here own their properties outright and are often moving through need rather than simply desire. But only time will tell.”
2023 could also be the year when more older homeowners opt to downsize because their properties are hugely expensive to heat.
As Beeton explains, this could end the severe lack of larger houses, particularly in some of London’s more expensive suburbs. This shortage has pushed up the value of these homes which gained a new allure in the race for space and gardens spurred by the pandemic.
Better-off househunters, with cash or a pile of equity, may see this as a moment to begin their search. Beeton comments: “There will be less competition for these houses - which means that you may be able to make an offer at the asking price, rather than bidding much more to have any chance of success, as has been the case.”
Predicting conditions for 2023 is fraught with difficulty, given the severity of the energy crisis and the ravages it could inflict on the economy. But there could be more cheer in 2024, as recovery tentatively emerges. The pent-up demand to relocate should mean a 2% rise in the average price in that year, driven by London and the South East.
If this proves to be the case, the average price by that time would be 77% higher than in 2008, which helps explain, why, despite volatility, the British put their long-term faith in property.
