Is a UK house price crash coming? Here's what the experts are predicting

After two years of rapid house price growth, the value of our homes has begun to fall - but does this mean a house price crash is on the cards?

Nationwide Building Society’s latest report that measures the rise and fall of house prices across the country recorded a 3.1% fall in property prices in March 2023 compared to the year before. The lender said it was the largest annual decline in prices it had recorded since July 2009. 

The regional picture is similar to the national one. Nine out of the 13 regions tracked by the lender saw a year-on-year fall in prices, while the remaining regions saw a slowdown in growth. Rival bank Halifax, which also reports on property prices, has yet to record a fall, but month-on-month growth has now slowed to 0.8% following a rise of 1.2% in February 2023. 

The news should not come as a shock to homeowners. Housing market experts have been warning of a slowdown since the Bank of England began raising interest rates in an attempt to calm stubbornly high inflation. 

When mortgage rates shot up after the disastrous September mini-budget those forecasts became gloomier, and homeowners were told to brace for a decline in prices. 

Is a UK house price crash coming?

Although most experts agree that house prices will fall this year, as yet no-one is predicting a house price crash. 

Borrowers’ buying power has been dented thanks to high inflation and a sharp increase in mortgage rates last year. The cost of fixed-rate mortgages has since reduced but rates remain high compared to the last 10 years. Two years ago, the average two-year fixed rate was 2.65%, now it is 5.32% according to data company Moneyfacts.

Since rates have risen, households can’t afford to borrow as much to buy a house so some sellers are reducing their asking prices. This has already started to happen, according to Zoopla. The property portal says, on average, sellers are offering a 4% discount off the asking price – the equivalent of £14,000.

Richard Donnell, executive director at Zoopla, said: 'As we end the first quarter of 2023, the housing market is in much better shape than many predicted at the end of 2022 and there are no clear signs of a house price crash.

'Although there has been an increase in asking price reductions, the positive news is that buyers and sellers are agreeing deals which are supporting activity in the housing market.'

How much could UK house prices fall?

Predictions vary over how much house prices could fall. Zoopla expects house price falls of up to 5% this year, this is likely to be less in more affordable parts of the country.

At the same time, estate agent Savills has forecast a 10% drop in house prices this year, on the basis that there isn’t another upheaval in the mortgage market and the Bank of England base rate gradually reduces from the middle of next year as inflation is brought back under control. It expects a 1% rise in house prices in 2024.

Anthony Codling, chief executive of home buying and selling platform Twindig agrees with Savills’ prediction: 'I do not think a house price crash is coming. In my view, at a national level, house prices will fall by 10% during 2023.

'However, it is foolish to compare national prices to local markets. The UK housing market is a collection of thousands of local housing markets which operate independently of each other. For instance, housing market conditions in Swindon do not impact house prices in Sidmouth.'

Zoopla recently conducted research into local markets around the country. It found there were only seven local authority areas in the country where house prices were already falling year-on-year, four of those were the London boroughs of Westminster, Kensington & Chelsea, Hammersmith and Fulham and Tower Hamlets. The other areas where on the east coast of Scotland. 

Areas where house prices are rising the most, which tend to be those where housing is most affordable, include Oldham, Rochdale and Wigan in Greater Manchester and Calderdale, West Yorkshire.

What does this mean for homeowners?

From the beginning of the pandemic until the autumn of 2022, house prices rose by around 25% across most of the country. Although no-one wants the value of their home to fall, when considered against the backdrop of the rapid gains made in recent years, homeowners are still likely to be selling for a price higher than the value of their home two years ago if prices drop by 10%. 

Although Nationwide’s economist Robert Gardner says it will be hard for the market to regain much momentum in the near term, for those who want to move home there’s some good news. There are 65% more homes up for sale than there were in March 2022, according to Zoopla data, so buyers have a lot more choice. 

Mortgage lenders have also been cutting fixed rates of late as they compete to win business. Variable rate mortgages, such as base rate tracker deals, remain high, however, as they are linked to the Bank of England base rate.

Anthony Codling says that homeowners should not be too concerned about a short-term fall in house prices: 'If you are thinking about buying today and you find a property that you can afford and you would like it to be your home, I’d advise against letting concerns about short term movements in house prices impact your long-term decisions. 

'Most of us stay in our homes for more than 10 years and there has not yet been a period of time where UK house prices were lower than they were ten years ago.'