The housing market is slowing and property prices are falling from their peak levels, with more significant drops expected this year.
Despite the latest official data from the Land Registry showing a 12.6% year-on-year house price rise in October 2022, more up-to-date reports from Rightmove, Halifax and Nationwide are showing month-on-month falls.
Experts anticipate more significant movement in 2023, with the downward trajectory continuing amid the rising cost of living and soaring mortgage rates.
Here, Which? analyses what’s happening to house prices and explains what might be next for the property market.
How have house prices changed?
House prices have risen considerably in the last couple of years, with the pandemic and stamp duty holiday bringing about a more volatile market.
The Land Registry’s UK House Price Index is the most reliable barometer of what’s happening to house prices, as it’s based on actual property sales rather than asking prices. It works on a two-month lag, so the most recent figures are for October.
The Land Registry says that the average price of a property in the UK rose by 12.6% year-on-year in October 2022 to reach £296,422, as shown in the graph below.
This record figure might imply prices are rising significantly, but recent data has been distorted by the market in 2021 around the time of the stamp duty holiday. Buyers in England and Northern Ireland could save up to £2,500 in tax if they purchased a home by 30 September 2021.
More up-to-date figures from the likes of Halifax show how house prices are beginning to fall. The bank’s statistics from November 2022 showed a 2.4% drop in prices, making it the largest monthly drop since the beginning of the financial crash in 2008. As for December, the figure fell a further 1.5%.
Average house prices over time
How do other house price indices compare?
There are several other property price indices. The portal Rightmove provides the most up-to-date figures, but they’re based on asking prices set by sellers rather than confirmed sales. Nationwide and Halifax also publish their own monthly data, based on mortgage lending.
All three providers are currently reporting much lower price growth than the Land Registry year-on-year and drops when looking month-on-month, as shown in the table below.
How many homes are being sold?
The property market boomed last year, as buyers rushed to take advantage of the temporary cut to stamp duty. This resulted in huge spikes of sales around the deadlines in June (when tax savings of up to £15,000 were available) and September (when savings of £2,500 were available).
The number of purchases each month is now much closer to pre-pandemic levels. The most recent data from HMRC shows that around 108,000 transactions went through in October 2022.
The graph below shows the number of sales recorded across the UK since the start of 2020.
Has the property market been slowing down?
For the first half of 2022, there was an imbalance between supply and demand, with too few properties coming on to the market.
This hasn’t gone away completely. The estate agent trade body Propertymark reported its members had an average of 33 properties for sale per branch in November, compared with a pre-pandemic average of 51.
There are signs, however, that demand from buyers has started to drop. Rightmove says properties took an average of 45 days to sell in November 2022, up from 32 days back in May.
How long does it take to sell a property?
What will happen to house prices in 2023?
This year, the cost of living crisis and rising mortgage rates are likely to affect the number of homes being sold. Experts also predict house prices have reached their peak and will therefore fall in 2023.
But the long-term picture is complicated. Early last year, experts forecasted relatively flat price growth for 2023, but economic uncertainty following the government’s mini-budget last month has resulted in predictions of price falls.
The estate agency Knight Frank forecasts prices will drop by 5% in 2023, and the same amount in 2024. Analysts at Capital Economics predict house prices will fall by a total of 12% by mid-2024.
The Office for Budget Responsibility (OBR) expects a 9% decrease between now and autumn 2024, while Rightmove is only anticipating a 2% drop this year.
Is it possible to get a good mortgage deal?
Much of the current uncertainty around the property market has been sparked by lenders withdrawing hundreds of deals and mortgage rates rising in the wake of September’s mini-budget.
This resulted in even the cheapest mortgage rates rising to above 5%, having been below 1% in 2021. Further uncertainty could be set to come, with the Bank of England having recently increased the base rate to 3% and poised to increase it further. For the latest information, check out our story on the best mortgage rates.
If you’re coming up to the end of your fixed term, our story on what to do if you need to remortgage offers advice on your options.
Finally, if you’re struggling to make your current repayments, see our guide on what to do if you can’t pay your mortgage.
This story is regularly updated with the latest house price index figures and expert views. The last update was on 6 January 2023.