Housing and Mortgage Market update

Rising rates dominated the news around housing and mortgage markets throughout 2022, setting the tone for an expected market downturn in 2023. After the latest Bank Rate rise in February increased repayments for those on variable rates, how will the mortgage and housing markets react?

Up and down

On 2 February, the Bank of England (BoE)’s Monetary Policy Committee (MPC) voted for a tenth consecutive increase to Bank Rate, taking the central rate to 4%. With inflation still close to record highs, Bank Rate is expected to keep rising until the middle of 2023, at which point market-watchers suggest it could peak.

In the short term, the latest rise will affect anyone with a tracker or variable rate mortgage through higher repayments. Between September 2022 and January 2023, a quarter of mortgage holders saw their monthly costs go up.1 Those with longer-term fixed-rate mortgages are protected for now but could be forced to pay more when their current deal ends.

More positively, however, the number of providers offering fixed-rate mortgages below 4% has risen in recent weeks. Competition between lenders is driving fixed-rate deals to their lowest point in months. By the end of 2024, two-year fixes could drop below 4%, experts predict, before falling as low as 3% in 2024.

House price growth slows

Following annual house price growth of 2.8% in December, Nationwide’s latest House Price Index reveals a continued slowdown, with growth of 1.1% in January 2023 compared to January 2022. Prices are now 3.2% lower than their August peak.

Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist said, “There are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover. It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks.”

The start of 2023 saw a further slowing in annual house price growth to 1.1%2, a marked drop from 2.8% recorded in December.

With ongoing cost-of-living challenges affecting many, experts predict further slowing in the months ahead. Raising the money for a deposit remains an obstacle for many first-time buyers, especially with the Help To Buy Equity Loan scheme due to end in March.

Despite slowing growth, “the overall affordability situation looks set to remain challenging in the near term,” according to Robert Gardner, Nationwide's Chief Economist. The latest figures show that affordability has fallen across all the UK, with average mortgage repayments as a share of take-home pay now at or above the long-run average in all regions.

Where will property prices stay strong?

Amid many predictions of falling property prices throughout the coming year, there are some areas that are likely to less affected.

Prime London postcodes, including Westminster, Camden, and Kensington and Chelsea, as well as university cities such as Oxford, York, and Cambridge, are reported to be the most likely to escape relatively unscathed.

Homeowners in these areas often have a good amount of equity under their belts and are therefore more insulated from rising mortgage costs. For instance, mortgages account for only 7% of the total value of homes in Kensington and Chelsea. This borough also has very few first-time buyers, who may be more likely to sell up in the face of unaffordable mortgage payments.

Possibilities abound for FTBs in 2023

It’s fair to say that there’s a lot of gloom around the housing market right now. But 2023 could provide ideal opportunities for first-time buyers (FTBs) to get on the housing ladder.

Buyers’ market

Most experts are predicting significant price falls in 2023, which would be the first time that house values have dropped for many years. The biggest slumps are expected in the south of England, where prices are higher.

With a downturn on the horizon, sellers have already started accepting offers on average 4% below asking price1. Doing so could save the average buyer roughly £10,500.

Flats provide value

Another opportunity for FTBs is the comparative value of flats. For those looking to purchase their first home, flats often offer the best value for money – and the price differential between houses and flats is now at its highest for 20 years across most of the UK.

In London, for example, the average house costs 1.7 times more than the average flat, compared to 1.4 times a decade ago.

If you’re looking to buy in 2023, we’re here to help!

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1Office for National Statistics, 2023,

2Nationwide House Price Index, 2023

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