2022 was a year of two halves for UK housing.
In the first half of the year, house prices grew strongly thanks to record-low mortgage rates and a continuation of the pandemic-driven desire to move. However, in the second half of the year, the picture became less rosy as rising living costs and a jump in mortgage rates caused demand for homes to halve, leading to a rapid slowdown in house price growth. In some areas of the UK, the value of individual homes is now falling, writing off some of the recent pandemic gains.
How much value are homes losing?
Of the UK’s 30 million homes, 16 million experienced value losses by the end of 2022. However, for the majority of these homeowners, the drop is small. The average value reduction in the final 3 months of 2022 was £3,900. When compared to the average value gain of £19,000 over the course of the whole year, this leaves most homeowners comfortably in the black for 2022.
Where are homes losing value?
The reduction in home values over the second half of 2022 was concentrated in markets where price gains have been slower over the last year. Homeowners in London have seen the largest number of reductions, followed by the South East. The average reduction between June and December was £8,400 in London and £5,200 in the South East. However, in both these areas, more homes increased in value than fell, showing how the pressure on values is highly localized.
Why are homes losing value?
Home values are starting to fall back because of weaker demand in the final 6 months of 2022. Rising mortgage rates and cost-of-living pressures are causing some potential home movers to press pause for now. And a reduction in demand leads to a reduction in upwards pressure on house prices.
What’s going to happen to home values in 2023?
The scale of value reductions has been relatively small so far but is likely to grow further in the first part of 2023. We’re expecting to see national house price falls of around 5% for this year. Homeowners who lose value may be put off moving or need to look at alternatives like cheaper homes or lower-value markets for their next move.
Overall, the outlook for the UK housing market in 2023 is uncertain. However, there are still some factors that could support house prices, such as the continued search for space and the ability to work from home.
