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A Cautious Look at the 2023 House & Mortgage Markets

A slow decent, not a spiralling crash

Homeowners have been reaping the benefits of a booming housing market in recent years, but the outlook for 2023 is a different story. According to data from Halifax, house prices have dropped by 2.3% in November, marking the steepest monthly decline in 14 years.

It appears that prices may continue to drop in the coming months. Rightmove has predicted a 2% decrease in prices, while the estate agent Knight Frank has forecast a 5% decline. This pressure may even continue into 2024, as the Office for Budget Responsibility (OBR) anticipates a 9% drop in values between now and autumn 2024.

The dip in house prices may be due to the economic uncertainty of the COVID-19 pandemic, as well as the end of the stamp duty holiday in March 2021. This could spell a difficult housing market in the short-term, making it harder for first-time buyers to get onto the property ladder and for current homeowners to move up the ladder. However, it could also present an opportunity for more affordable housing in the future.

Winter Sales for First Time Buyers

Lower house prices may be a welcome relief to many first-time buyers hoping to get onto the property ladder. However, the number of people actually able to move home could be heavily affected by the cost of living pressures they are already facing. According to UK Finance, the number of property sales is expected to drop by a fifth this year, from 1.2 million to around 1 million

blue shopping bag and a red sale sign

For those who are able to move, the market could be in their favour, offering buyers the opportunity to negotiate better deals. Data from the estate agent body Propertymark suggests that, due to reduced demand, 72% of properties sold in November were below the original asking price. This could be a great opportunity for those looking to buy their first home or move up the property ladder. Lower house prices could provide a much needed boost to the housing market, however, the cost of living pressures may mean that fewer people can actually take advantage of the potential savings.

What can we expect from the Mortgage Market?

Interest rates will remain higher than before

The past quarter of 2022 saw mortgage rates skyrocket, due to the effects of inflation, the mini-budget, and other economic factors pushing two-year fixed mortgage rates to a fourteen-year high. Rates have now started to fall again, with some of the lowest rates dipping even lower than 5%. While this is certainly a relief for borrowers, it still stands that current rates are five times higher than the all-time low of 0.79% that we saw in late 2021.

hot air balloon in sky

While there is still hope that rates will continue to decrease in 2023 as inflation stabilises, the bank of England base rate will ultimately have a major influence on how quickly this will occur. Even if things progress in the most positive manner, it’s unlikely that rates will return to the same lows of 2021. As such, mortgage rates remain a major factor in the financial decisions of many people.

Tracker Rate mortgages could rise in popularity

In recent months, an increasing number of homebuyers have been turning to tracker mortgages for their borrowing needs. According to data from Rose Capital Mortgage Brokers, the proportion of people choosing trackers rose dramatically from 8% in October to 35% in November.

Tracker mortgages could offer cheaper interest rates than some fixed-rate deals, but the downside is that your payments will fluctuate depending on changes to the base rate. This means that if the base rate goes down, your payments will decrease and vice versa.

Given that the market is expecting the base rate to only increase by a small margin in 2023, some borrowers may be tempted to opt for a cheaper tracker over the relative security of a fixed-rate deal. By taking this risk, borrowers can potentially save a lot of money in the short-term, but it’s important for them to remember that their payments could increase significantly if the base rate rises.

Repayments are going to remain higher than before

The stamp duty holiday implemented in 2021 saw an unprecedented rise in the number of homebuyers across the UK. Many of those would have opted for a two-year fixed-rate mortgage, as 1.8 million of these mortgages will be up for renewal in 2023. Unfortunately, the rates for mortgages are much higher than what they were two years ago, meaning many borrowers will experience financial strain when it comes time to remortgage their property at a more expensive rate.

In order to avoid being hit with the extra cost of a higher rate mortgage, it is important for those who are due for renewal to begin researching their options early. Homebuyers should look at both their current mortgage lender and other lenders to compare the best rates and products available. Additionally, they should consider their short- and long-term needs, as well as the benefits of various products such as offset mortgages and flexible mortgages.

It is also important to start saving now and build up a deposit if possible. Having a larger deposit could potentially save thousands of pounds in the long run. Ultimately, the key to finding the best deal when remortgaging is to do your research, compare the options, and act promptly to ensure you get the best deal available.

Will there be additional support from lenders?

With the prospect of higher mortgage rates, many homeowners may find themselves struggling to keep up with repayments. This could potentially lead to a situation where homeowners are falling into arrears, and lenders need to provide support.

In this situation, lenders may offer various options to help homeowners, such as extending the term of the loan, switching to interest-only payments, or temporarily pausing or reducing payments. These measures could be key to keeping homeowners out of arrears.

If you are worried that you may not be able to make your mortgage payments, it is important to contact your lender right away. They will be able to advise on what measures they can offer, and provide guidance on how you can best manage your payments. Don’t hesitate to reach out – lenders can offer a helping hand and provide support during these difficult times.

Get expert advice before making any decisions

Before you make any serious decisions about buying a property or refinancing your home, you should speak to a qualified mortgage professional. This way you can discuss your ideas, concerns and plans with someone who has an in depth understanding of the marketplace and can guide towards the best options you have available.

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