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Have UK house prices bottomed out after the recent rises?

Updated 10 May 2023

5min read

Craig Rickman
Senior Content Writer

House prices rose unexpectedly during April, arresting seven consecutive months of declines. And while a rebound is too early to call, the prospect of a crash looks increasingly doubtful.

Have house prices bottomed out

In 2014, Sir Jon Cunliffe, the deputy governor for financial stability at the Bank of England, warned that the housing market could be about to crash. Laying out his reasoning, Cuncliffe cited soaring property prices, which have historically been followed by equally sharp downturns. 

Needless to say, Cuncliffe’s concerns did not materialise. Not only was a crash averted, but prices rose 5.7 per cent the following year, and have continued surging upwards since. During this nine-year period, countless others have either predicted or cautioned a crash was on the cards, and none have got it right.  

This tells us two things. First, the housing market is notoriously difficult to forecast, and second, it's remarkably resilient.

But this year the situation was meant to be different. It seemed inconceivable that the market could withstand the return to higher interest rates, which would choke buyer affordability and cause prices to careen downwards. Some experts predicted valuations could fall as much as 30 per cent.

During the few first months of the year, the market certainly cooled. House prices fell 3.1 per cent year on year in March, according to building society Nationwide, the biggest annual drop since July 2009.   

However, despite suggestions that even sharper falls might follow, much to everyone’s surprise house prices rose 0.5 per cent in April.  

This has not only raised eyebrows, but also some serious questions, particularly for first-time buyers. Most notably, has the market already bottomed out with house prices set to bounce back sooner than expected? Or is last month's rise merely a blip with valutions set to resume their downward slide in May?

Let’s find out what’s going on. 

What's changed in the property market?

The housing market has seen a notable shift in tempo since last autumn. The frantic activity between 2020 and 2022, when a red-hot market pushed prices to record levels, has ameliorated. House prices fell seven months on the bounce between September 2022 and March 2023, and mortgage applications dropped sharply in Q4 2022. 

Although this has led to a calmer market, it's far from a turbulent one. The market may not have bottomed out, but it's in far better shape than many expected.

In fact, between January and February, mortgage applications rose from 39,647 to 43,536, after falling six months in a row. 

However, there is still plenty of uncertainty around, and the future of house prices remains on shaky ground.

With interest rates rising from 0.1 per cent to 4.25 per cent since December 2021, mortgages have become more expensive, making it harder for buyers to purchase homes they could previously afford. In addition, those with the financial muscle to buy might be holding off in the hope of snagging a bargain should prices tumble. 

For these two reasons, demand is still relatively thin compared to the previous two years and should stay this way for some time yet.  

Have prices reached the floor?

April’s house price rise may have caught everyone by surprise, but we can never read too much into a single month’s data. The steepest falls may still be to come.

In January, Halifax predicted prices to fall 8 per cent throughout 2023, while Capital Economics has forecasted a 12 per cent drop.

According to others, these falls could spill into next year. The Office for Budget Responsibility expects house prices to tumble until September 2024.

One major headwind continues to be inflation which is squeezing buyer affordability.

The Consumer Prices Index, the UK’s main measure of inflation, dropped 0.3 percentage points to 10.1 per cent in March, kept in double digits by rampant food costs, which rose at their fastest pace in 45 years. 

This was met with a somewhat mixed response. 

On one hand, it indicates that February’s inflation rise was almost certainly a blip, and we can expect price rises to continue easing over the coming months. 

But on the other, prices are still rising faster than at any other point in the last 40 years, and the Bank of England’s prediction that inflation will fall below 3 per cent by the end of the year looks increasingly ambitious. 

With inflation proving stickier than anticipated, at least one further interest rate rise now seems inevitable. The BoE’s Monetary Policy Committee meets again on 9 May and will likely jack the base rate up to 4.5 per cent. 

This could prove painful for borrowers, as mortgage rates may edge up as a result. Those on variable rate loans will see repayments rise immediately, while new fixed-rate deals may become more expensive. 

Is now a good time to buy?

While no one wants to overpay for a property, timing the market is incredibly tricky.

Events during the pandemic offer a case in point. Many expected house prices to fall when Covid hit, but the combination of the race for space, the stamp duty holiday, and beefed up consumer savings sent buyers flocking to the market. This caused valuations to rise more than 20 per cent in two years.

If you're currently looking to buy, have found your dream home and can afford the repayments, whether prices are either high or low is unlikely to prove much of a deterrent.

How might falling prices affect me? 

This very much depends on your personal situation. 

If you’re a first-time buyer, lower property prices might be the only way of getting a foot on the ladder, given the sharp rises we’ve seen since the pandemic. The average home is now 10 times more than the average income, and most lenders cap borrowing at 4.5 times annual earnings. 

But for current homeowners, especially those who bought recently, a crash would run the risk of negative equity. This is where the borrowings on your property are worth more than the property itself, which can make it difficult to sell your home and remortgage.  

Does the market favour buyers or sellers right now? 

Up until last year’s ill-fated mini Budget it was still very much a sellers’ market, despite rising interest rates. With multiple buyers scrapping it out for each home, price wars broke out. Most sellers received offers far above their original asking price. 

Since then, the market has become less competitive. Mortgage rates increased sharply in response to then-chancellor Kwasi Kwarteng’s tax-cutting measures. Rates have come down quite a bit since then, but it's fair to say sellers no longer hold all the cards.

In February, sellers shaved an average of £14,000 off the initial asking price, and according to This is Money, estate agents averaged 35 homes for sale per branch in March, the highest number since January 2021.  

With more homes entering the market, buyers are in a stronger position to negotiate the right price.

What's going on with mortgage rates?

Despite interest rates continuing to rise this year, mortgage rates have become cheaper, much to the relief of borrowers. 

As noted above, one of the reasons rates are coming down is that lenders are fighting over a smaller pool of buyers.

According to Uswitch, the price comparison site, the average two-year fixed deal is currently 5.14 per cent, while the average five-year fix is 4.69 per cent. 

Meanwhile, the average two-year variable rate mortgage is 4.84 per cent. 

It's worth noting that in October the average two-year fixed deal was above 6 per cent, so although rates are higher than they were a year ago, the situation has improved significantly.

However, the best rates on the market are around the 4 per cent mark, so it’s really important to shop around before locking into a fixed-term deal.

I'm looking to buy – should I take mortgage advice? 

Regardless of whether you’re a first-time buyer, upsizing your current home, or looking to remortgage, it’s never been more important to seek expert advice. 

A mortgage adviser will scan the entire market to find the deal that’s right for you, which could save you hundreds of pounds a month in repayments, freeing up more cash to protect your household finances from the rising cost of living. 

Click below to connect with a mortgage broker today.

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About the author
Craig Rickman is senior content writer at unbiased.co.uk. He has been writing about personal finance and wealth management since 2016, including four years as a journalist at the Financial Times Group. Prior to this, Craig spent eight years working as a regulated financial adviser. He holds the CII level 4 Diploma in Financial Planning.