House price growth could fall to 'zero' in 2023

House price growth could fall to 'zero' in 2023
Luke MacGregor/Bloomberg

House price growth could flatline to zero next year as mortgage approvals and remortgages start to fall back to pre-pandemic levels.

Speaking at Intermediary Expo yesterday (June 29) in Birmingham, Santander’s chief economist Frances Haque said while nobody could have foreseen house price growth reaching double digits last year, every analyst is predicting a fall back this year.

While some have gone as far as to suggest “negative growth”, Haque forecasted 2 per cent growth by year end and “zero growth” going into the new year.

“It's fair to say at the beginning of the pandemic, nobody thought price growth would reach double digits and stay at those levels,” Haque told a room of brokers.

“Having said that, I think pretty much everybody I know is predicting a fall back in house price growth as we move through this year.

“I've seen some forecasters with negative house price growth for 2023. Our own view is probably something that’s around about zero, maybe slightly higher. But I think that does depend, in part, on what happens to bank rates.”

Haque said with new mortgage approvals per month falling back to pre-pandemic levels (c.66,000), and with remortgage approvals also falling back, activity is “obviously slowing”.

“I suspect a lot of people who could lock in new deals at the beginning of the year have done so,” said Haque. “And as interest rates rise, no doubt that [slowdown] will continue.”

The Bank of England has raised the base rate five times, with it now sitting at 1.25 per cent, having sat at 0.1 per cent in December.

Some 97 per cent of new mortgages are now fixed, which Haque said is a sign that people want to ensure they understand what their monthly payments will be over the next two or five years.

“Certainly house price growth has defied all our expectations over the last few years but I am pretty expectant it will start to fall back now,” she concluded.

Asked how the supply and demand crisis would continue to impact the housing market over the next 12-month period, Haque said there is still not enough supply coming in to push house prices down - versus them flatlining as she has predicted.

UK property transactions fell by 10.5 per cent in April, according to HM Revenue and Customs data.

Figures from the Office for National Statistics also showed house price growth already starting to revert back to single digits in March, but in April it jumped back up to 12.4 per cent.

Haque’s predictions are even starker than those made by other firms. Rightmove’s latest house price index predicted growth falling to 5 per cent by December.

The property search tools put this down to a perfect storm of affordability constraints facing house buyers, interest rates continuing to rise and more stock coming to the market to ease demand.