The outlook for mortgages in 2023

However, this is still low by historic standards and close to the peak reached during the pandemic when house prices and activity surged. 

The fact that the vast majority of the mortgage stock (about 85 per cent) is on fixed interest rates means most homeowners with a mortgage will be protected from higher mortgage rates, at least for a period.

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This will give them time to adjust, especially since nominal wage growth is rising at a healthy clip. 

Clearly, those remortgaging in the near term will face a significant hit.

For example, the typical borrower rolling off a five-year fixed rate product and taking out a new one will see their mortgage interest rate rise by about 350 basis points, which means an extra £300 a month on the average mortgage. 

But it is also important to remember that affordability testing has been central to mortgage lending since the financial crisis and typically stress tested at an interest rate above those prevailing at the moment.

This means that, while it will be difficult, the vast majority of those refinancing should be able to cope.

Despite weak consumer confidence on the back of a stagnant economy, falling real incomes and a near tripling of mortgage rates, the fact that the housing market remained buoyant in the first three quarters of 2022 provides some reassurance that there will be a pickup in activity in the New Year, although it is likely to remain tepid until the broader economic outlook improves. 

Similarly, although house prices are likely to see a modest decline in 2023, perhaps of around 5 per cent, a significant deterioration in the labour market or more elevated mortgage rates would probably be required to generate the double-digit declines suggested by some forecasters.

While the risks are skewed in that direction, it does not seem like the most likely outcome. 

Robert Gardner is chief economist at Nationwide