House prices are now just over nine times the average salary, according to the latest ONS figures. 

That’s worse than back in 1997 when the typical mortgage was 3.5 times average take home pay. Pre-pandemic the ratio was 7.9 times earnings. That was a sum that many property analysts already believed was becoming unsustainable. 

And its why house prices are predicted to fall next year – especially considering the rise in mortgage interest rates and the general cost of living means householders having to dig deeper into their pockets. 

Predicted falls range from five to 20 per cent

The question is though – just how much will property prices fall by? Predictions vary from five to 20 per cent. Estate Agents Savills expect a 10 per cent drop in house prices, while the government’s Office for Budget Responsibility predicts prices will go down by nine per cent. That’s just one per cent more than the Halifax, who predict an eight per cent fall. The lender’s House Price Index puts the average property at £285,579.

Analysts at Nationwide are slightly more optimistic, believing that, at just five per cent, the fall in house prices won’t be anywhere near as drastic. But they warn that once prices start levelling out, the market won’t pick up again for some time. The reason for this being the shrinking economy and an expected higher unemployment figure as we go further into 2023. Currently unemployment is sitting at 3.7 per cent but the lender predicts it will rise five per cent in 2023.

Estate Agents Knight Frank agree with Nationwide, by also predicting a five per cent drop in property prices. They blame higher mortgage interest rates discouraging buyers from going ahead.

Homeowners already cutting costs by four per cent

Towards the end of this year property portal Zoopla said it was common for sellers to reduce house prices by four per cent in order to secure a sale. This is reflected in a slowing of demand, with property sales on the portal down 28 per cent compared to the same time last year. 

For next year rival portal Rightmove says it expects asking prices to fall by just two per cent. And, unlike the previous fall in house prices at the start of the 2007/8 recession it doesn’t expect many repossessions. It does, however, expect property to take longer to sell – up to 60 days, instead of just over two weeks, as in the buoyant property market of 2021.

Recently moved home owners may find it galling to see the price of their new property fall by as much as 10 per cent. But the good news is that property prices remain up to 20 per cent higher than pre-lockdown back in 2020. That means people will have enough equity in their property to withstand the plummeting values. 

Private rental costs escalating

Private rental costs meanwhile, are on a completely different trajectory. These are rising at quite an alarming rate for tenants in the sector. In November the average rent went up by four per cent, for instance – that’s a record figure and one that is causing economists to warn renting is becoming unsustainable for many individuals and families.

What 2023 will bring in terms of the property market we can only wait and see. 

To stay updated with the latest news in the property world, subscribe to a free trial of Blue Bricks Magazine by clicking here. You can cancel after the trial and it costs nothing, or it’s just £9.99 if you like it and want to continue (which we’re sure you will).