It is understandable to feel stressed and anxious about the current economic situation the United Kingdom finds itself in right now.

All over the news, the cost of living crisis continues to dominate headlines as a combination of COVID lockdowns and Russia’s invasion of Ukraine drove prices up. Indeed, inflation remained at a whopping 10.1 per cent in January 2023 – a slight drop from the month previous but still high.

With utility bills, petrol costs, and food prices still on the rise, people all over the UK are having to tighten the purse strings.

House prices too are affected. The rising costs, the increase in interest rates, and higher mortgage repayments are all contributing to decreased demand.

House prices fall as demand drops off

Nationwide said house prices fell for a sixth straight month in February, bringing the average price of a house in the United Kingdom down to £256,406.

The back end of last year saw significant drops in both November (-2.4%) and December (-1.3%), suggesting there is an acceptance from sellers that asking prices need to be lowered to contend with the cost of living crisis and increased mortgage rates.

Various sources expect a drop between 5-10% over the coming year as buyers will find it increasingly difficult to lend money or decide mortgage repayments are simply too high, thus forcing sellers to accept a lower asking price.

The factors impacting demand

The government’s controversial mini-budget in September led to a response by the Bank of England, who have put up interest rates, which currently sit at 4%.

Higher interest rates have a direct impact on homeowners, especially those who are not on fixed-rate mortgages. Those on tracker mortgages can expect to pay on average £48.99 more a month, while those on standard variable mortgages will pay around £30.81 a month more.

The high rate of inflation is naturally impacting on people’s decisions too. With the cost of fuel and food skyrocketing, families are finding themselves with less disposable income than before, and so are perhaps not looking to move in such a volatile market. Indeed, some may be looking to downsize and forced to take a lower price.

Will the housing market crash?

The current financial situation does not necessarily mean we are headed for a huge market crash.

Despite the impacts of Brexit, the global pandemic, and the cost of living crisis, the value of an average UK home has grown by about 20% since the middle of 2020.

What we might see instead is more of a market rebalance, with the increase in interest rates and mortgage repayments leading to a slowing down in the market.

The usual factors for demand – such as debt, death, divorce, the need to downsize, relocating for a job – still remain and so demand will usually always outstrip supply.

If you are thinking of selling in the current market, though, it would be wise to find the best estate agent, compare the best conveyancing solicitors, and have your energy certificate ready.