House prices are predicted to fall in 2023, but 2022 still saw the total value of UK homes hit a high of £8.6trn in 2022 following a bumper three years for house prices, research from estate agent Savills showed.
Data from Savills showed a 5.1% increase in the total value of UK homes from 2021, a jump of £425bn from the year before.
This was lower than the growth seen in 2021 and 2022, which saw increases of £500bn and £700bn respectively, but still means a total of £1.6trn has been added to UK housing value over the last three years, and by nearly 23% since 2019.
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Looking forward though it seems 2022 was a high point. House price growth is expected to slow throughout 2023, with some analysts expecting house prices to fall as much as 30%.
“The cost and availability of mortgage borrowing will be crucial to the shape of the housing market over the next four or five years,” says Lucian Cook, Savills head of residential research.
Mortgage rates are currently sitting at around 5% following a series of interest rate increases by the Bank of England. The higher cost of borrowing has already affected the property market – mortgage borrowing fell by £1bn from November to December 2022.
Most house price indexes have been recording falls in property prices and predict further falls throughout 2023.
2022 was a high point for house prices
“Recent figures from HMRC indicate that buying activity peaks among those in their 30s, with the under 45s accounting for 59% of all purchases,” says Cook.
“While the purchasing power of older buyers is more determined by the housing equity they have accumulated, younger buyers require finance which means the mortgage markets are the engine room of the housing market.”
First-time buyers are increasingly being priced out of the market, and the increased cost of renting is likely making it harder for many to save up for a deposit.
“Combined with the prospect of lower levels of house building, we expect that 2022 will represent a high watermark for the value of the nation’s housing stock for a few years,” says Cook.
Mortgage-free homeowners have benefited the most
Outstanding mortgage debt stands at £1.6trn, according to the Bank of England, meaning net housing wealth rose over £7trn for the first time last year, nearly half of which was held by mortgage-free owners.
Mortgage free homeowners have benefitted the most from the growth in value. According to Savills nearly 40% of the growth over the past three years was enjoyed by those who have paid their mortgage debt.
Meanwhile the private rented sector saw much slower pace of growth, “reversing a trend seen over the previous five years”.
The value of private rented stock grew by £495bn in the five years between 2012 and 2017, surpassing the £443bn growth in the value of homes owned by mortgaged owners.
But over the five years to 2022, the value of private rented stock grew by £222bn, paling in comparison to the £669bn mortgaged owner-occupier homes experienced.
This is due to a couple of factors. For one, those who bought homes in the latter part of the 20th century have “joined the ranks of the mortgage-free”.
Secondly, privately rented housing stock levels have been under pressure consistently which has slowed growth in the sector.
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