UK House Prices Predicted to Fall as Interest Rates Rise

UK house prices continue to stagnate as February comes to a close but analysts are predicting prices to potentially drop 5-10% in 2023.

A drop in prices, which could have far-reaching consequences for homeowners and the economy at large, would mark a significant shift from long-held assumptions about the impervious housing market, which has defied gravity for years.

UK house prices have fallen from their peak last year due to continued stubborn inflation and rising interest rates, making borrowing money more expensive.

While most analysts agree prices are likely to decline throughout the year, it’s difficult to predict exactly how much home values will fall.

The Bank of England has predicted house price growth to slow down in Q2 and Q3 this year, while Robert Gardner from Nationwide has said there is likely to be a modest decline of around 5% in the next 10 months.

Lloyds Bank has forecast house prices to fall by 8%, and the Office for Budget Responsibility has projected that prices will fall by 9% between 2022 and 2024 before starting to rise again throughout 2025.

Zoopla has predicted a 5% drop in 2023, while Karl from Property Press Online believes there won’t be a house price crash but rather a balancing between asking and sold prices with an expected fall of around 5-8% over the next year.

Chipping Away at Historic Gains

The UK housing market has long been seen as a safe investment, with house prices steadily increasing for decades – prices have risen significantly since Q1 2009, from £149,709 to £270,452 (Q2 2022), an 81% increase – primarily due to limited supply and historically low interest rates.

According to the Office for National Statistics (ONS), house prices rose by an overall average of 9.8% in the 12 months to December 2022.

This figure masks considerable variations among the home nations, with England and Wales both recording an annual growth rate of 10.3%, while the figure was 10.2% for Northern Ireland and 5.7% for Scotland.

However, the UK housing market has entered a worrying start to the new year with the average sold house price dropping by 5% between December 2022 at £285,425 and January 2023 at £281,172.

In January, Nationwide Building Society reported that house prices dropped 0.6% as demand from home buyers continued to decrease — higher borrowing costs and slumping sales mean lower overall home prices.

This comes as the Bank of England has vowed to continue raising interest rates, inflation remains stagnant and the economic shock from Russia’s war in Ukraine still weighs heavily on the global economy.

The affordability crisis has shattered long-held assumptions about rising house prices, with polling showing that British homeowners would prefer house price growth to remain low or stop entirely if it meant houses were more affordable for those who don’t own property.

Since 2000, average wages have grown by 94% while house prices have grown by 224%, highlighting the growing gap between wages and house prices.

The Potential Good News?

Analysts say that if inflation comes down, real wage growth restarts and the economy begins to grow, expect to see only a modest decline in house prices.

Halifax’s House Price Index also showed that house prices remained unchanged for the first time in four months in February 2023, indicating that stability could possibly be returning to the UK’s housing market.

The winners and losers of this downturn could depend on how far prices fall and how quickly they recover.

On the upside, those who can afford to buy property during this period may benefit from lower prices in the long-term – but it remains to be seen how far UK house prices will fall and what impact this will have on the wider economy.


The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

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