Next Year’s Market - detailed analysis by the Halifax

The Halifax has released a snapshot of the housing market as the year ends - with the cost of living crisis making a dramatic impact.

Halifax home’s director Andrew Asaam says: “It was a tale of two halves for the UK housing market in 2022. The year kicked off with average house prices continuing to rise at pace, still supported by low interest rates and strong demand from buyers. This meant the typical property had added more than £17,500 to its value by June. 

“Following such rapid house price growth, and the growing economic headwinds, a slowdown was almost inevitable. We saw this play out with a flattening of house prices over the summer, before the 2.3 per cent decrease recorded in November. 

“It’s important to remember we saw some of the biggest house price increases the market has ever seen over the last few years. Between March 2020 and August 2022, the average house price increased by nearly £55,000 (23 per cent) to £293,992, a new record high.”

Asaam says that as the increasing cost of living puts more pressure on household finances and rising interest rates impact customers’ monthly mortgage payments, there’s understandably now more caution among both buyers and sellers – particularly following recent market volatility – which has seen demand soften as people take stock.

He continues: “Looking ahead to next year, it will clearly be a more challenging economic environment and the housing market will continue to rebalance to reflect these new norms. Though the limited supply of properties for sale will continue to support prices, the pandemic-driven surge in demand has receded, and we’re emerging out of more than a decade of record low interest rates.

“Unemployment is expected to rise and reach around 5.5 per cent. This is relatively low by historical standards, but will be challenging for many people. While inflation as a whole may be close to or at its peak, household energy bills are likely to rise again, putting more pressure on household budgets. 

“We therefore expect that UK house prices will decrease by around eight per cent next year. To put this into perspective, such a fall would place the average property price back at roughly the level it was in April 2021, reversing only some of the gains made during the pandemic. 

“There is still uncertainty around this forecast, with the trajectory for Base Rate (now expected to peak at 4%) and unemployment levels key to determining any future changes.”