2022 was a turbulent year in almost every way imaginable. From geopolitics to the UK economy, this year will go down as a nadir, even after the trials of COVID-19 in 2020 and 2021.
However, for most of the year, the housing market was a rare source of good news for anyone working within conveyancing. Last spring saw record-breaking house prices. Meanwhile, due to the stamp duty holiday extension, the ‘race for space’ and constant price growth, transaction levels remained stable throughout the year.
All in all, 2022 was a satisfying year for conveyancers everywhere. Despite this, it became increasingly clear in the last quarter of the year that storm clouds are on the horizon. So what does 2023 have in store for the housing market?
Has the Slowdown Begun?
Sadly, the end of 2022 didn’t match the start. According to Halifax, October and November saw the largest drop in the average house price since 2008. And it looks as though 2023 promises more of the same.
The Bank of England is expected to continue ramping up interest rates. Estate agents Savills predict that the Bank base rate will hit 4% sometime in the next few months and remain there until mid-2024. Meanwhile, other commentators are predicting it could spike to 4.75% before inflation is tamed over the next couple of years.
The most probable outcome of this is a fall in demand. Anyone on a variable-rate mortgage is likely to see their costs rise over the course of 2023 and this will also dissuade would-be buyers from making their move. As a result, British banks expect to lend 23% less to homebuyers in 2023, in effect, pushing volumes down to pre-pandemic levels and ending the two-year housing boom.
How Far Will House Prices Drop?
It appears we’ll see some fall in property prices over the next 12 months but what kind of figures should we expect?
Well, as always with predictions, it depends on where you look. Conservative estimates expect predict price declines of between 5% and 12%. However, there are plenty of more extreme projections at the other end of the scale, with some commentators predicting a worst-case scenario of 15-20%.
It’s important to state though that, long term, this doesn’t have to be a bad thing. Of course, the boom of the last two years has been very good for conveyancers. Nevertheless, you’ll find few people who’ll argue that the market isn’t overheated or that skyrocketing prices are sustainable.
In the longer term, once interest rates begin to normalise, a drop in prices could just be the kickstart the market needs. It stands to reason that if favourable borrowing conditions return and prices have fallen, many homebuyers who were put off that first-time purchase or dream home may reassess. And that can only be good for volumes and demand.
Transaction Volumes to Fall
Following on from the previous point about pricing, unfortunately, it’s also likely transaction volumes will decline. New analysis from Savills suggests that conveyancers should prepare for transaction levels to fall by as much as 28% in 2023.
Yet, before we all start rending our garments and predicting the end, it’s worth pointing out that this is a long way from the doom of 2008. Even if the worst possible outcome does come to pass and transactions drop by nearly a third, they would still be 18% higher than the lowest levels of the global recession. So there is hope, even if you need to employ a little perspective to find it.
As for when transaction levels are set to recover, again, this is a matter of some conjecture. Some feel that by 2024 things should be sparking back into life. Meanwhile, others are predicting a much gloomier outlook and proffering 2027 as the point when transaction volumes will return to pre-pandemic levels.
But It’s Not All Bad News
We’re conscious that thus far we’ve offered mostly doom and gloom – not what anyone asked for in early January. Despite this, there are some reasons for optimism.
Firstly, as we’ve already mentioned, this slowdown is set to be much milder than the cataclysm of 2008. It probably won’t be much comfort to anyone worried about the year to come, but the housing market and conveyancers have weathered far worse and bounced back stronger.
Second, while the market is set to dip quite dramatically, virtually no expert is predicting a wholesale crash. This means that, while there will be less activity, things won’t grind to a halt and much of the industry will continue working, albeit at a more pedestrian pace.
Finally, this could just be the correction the market needs. It’s been clear for some time that the UK housing market is running far too hot and that current prices are unsustainable. As stated earlier, a decline in prices coupled with a cut to interest rates sometime in 2024 or 2025 could actually be a good thing for the market. It could help entice reluctant buyers back and open up new opportunities for prospective first-time owners.