House price predictions won’t necessarily come true

According to a lot of commentators and economists, house prices are going to fall potentially by double-digit amounts over the course of 2023. These falls are apparently ‘baked in’ and you could bet your mortgage on it happening, if you were so inclined.

Except the arguments don’t appear to us to be wholly convincing, and while we may well have seen some indices showing drops over the last month or so, there is nothing ‘baked in’ about where house prices go next year or indeed any year. Especially when we continue to run a demand surplus compared to supply, with little chance of us hitting the number of new properties we actually need each year.

Each house price index is different of course, based (on the whole) on a limited amount of data and with their own unique methodologies, so what can we actually rely upon to tell us what is happening right now and where we might be heading in the future?

Well, what about the Land Registry data, which is based on actual transactions that have happened. What does it tell us?

Just this week, Land Registry released its data and – lo and behold – it shows house prices in the UK in October increased by 0.3%, that means annual inflation has risen to 12.6% and pitches the average UK property at £296,422.

Now, of course, this figure might begin to fall over the coming months. October completions would have been offered on some months before, and there is always going to be a lag here in terms of the data.

However, in England prices were up overall, the same for Wales, and while clearly different regions across the country will be reacting differently, it doesn’t – not yet at least – paint a picture of a dramatic fall in house prices.

To repeat, this is data from all completed transactions and therefore can be relied upon much more than the selective data we see coming out of lenders who run such indices, or indeed those not even based on sales but, for example, asking prices.

That being the case, it feels like a much more data set to extrapolate future movement from, and perhaps tells us that the market could be a little bit more robust than many seem to be suggesting.

We wouldn’t argue of course that the purchase market is anything but relatively benign at the moment, and that expectations are being reset around what is achievable in this market and what buyers are prepared to pay for property.

However, having realistic vendors is no bad thing, and as the Land Registry appears to show, price levels are still being maintained. Realistic vendors accept realistic offers, and if – as many expect – values do begin to see a trend downwards over the coming months, we’re not so certain that it will last much longer than this.

Certainly, many would-be purchasers have had their plans put on hold mostly due to the obstacles they have faced recently in securing the finance they need. Their deposits have not disappeared, but their ability to get the mortgage loan amount they required were squeezed.

A combination of rising interest rates, feeding into higher stress rates and tighter affordability criteria impacted those looking to buy in the immediate aftermath of the ‘Mini Budget’. One client who we’ve been trying to help recently wanted a £250k mortgage on a £400k home, and we’ve struggled to secure them a maximum loan above £220k recently.

That has meant a committed purchaser hasn’t been able to move forward with what they wanted to do – and there will have been thousands of people in the same boat over the last few months. However, as we all know, the mortgage market is already shifting and the trickle of rate and criteria moves will become a flood in January, and will literally open doors for people like the client mentioned above.

Purchase activity will improve – we’ve already seen an increase in enquiries – as the mortgage market is ‘released’ and, given the lack of supply, realistic valuations will be achieved and, we suspect, prices will be maintained.

Perhaps we are on the verge of a big shift in prices but the fundamentals of our market, and the desire to own a home in this country, seem to suggest any drops will be short-lived. A year of house price falls is by no means a foregone conclusion and we should treat all such predictions with a massive pinch of salt.