Nationwide is predicting a 5% fall in house prices in 2023 with economic headwinds set to strengthen as real earnings fall further, the Bank of England increases interest rates again and the economy shrinks.

Despite the glum forecast the building society says that the housing market remained remarkably resilient in 2022 with annual house price growth in double digits before the mini-Budget.

Robert Gardner (pictured), Nationwide Building Society’s Chief Economist, says: “For the first three quarters of 2022, the housing market was remarkably resilient.

“For much of the year, activity levels remained at or above pre-Covid levels with annual house price growth in double digits (ranging from 10% to 14.3% in the first eight months of the year), despite intense pressure on household finances from surging inflation and a steady rise in mortgage interest rates.”

INCREASED

Between January and August, the average UK house price increased by almost £20,000, from £255,556 to £273,751.

But Gardner adds: “The financial market turbulence which followed the mini-Budget at the end of September represented a major shock to the housing market.”

Gardner says that when mortgage rates moved towards 6%, the monthly mortgage payment on a typical first-time buyer property (bought with a 20% deposit) increased to the equivalent of 45% of an average worker’s take-home pay.

SETTLED

He adds: “Financial market conditions have now settled with long term interest rates returning to the levels prevailing before the mini-Budget. However, mortgage rates are taking longer to normalise and activity levels in the housing market have shown few signs of recovery and house prices saw three successive monthly declines since September – the worst run since 2008.

The risks are skewed to the downside.”

“The risks are skewed to the downside, but there is still a good chance that we can achieve a relatively soft landing next year with activity stabilising modestly below pre-pandemic levels and house prices edging lower, perhaps by around 5%.”