According to the Office of National Statistics, 2023 marks the beginning of the end for affordable 5-year fixed interest rate mortgages for 1.4 million homeowners in Britain. The ONS reports that 57% have been paying back their mortgage in the past five years at a fixed interest rate of 2%. However, as Britain endures a financial recession, 800,000 homeowners needing a new mortgage are set to see interest rates nearly triple in 2023 to 5%, resulting in many being unable to afford their homes.
The recent reports of homeowners now unable to afford to pay their mortgages at the new rate of interest in 2023 have highlighted the shortcomings of The Bank of England’s mortgage affordability check, which they withdrew in 2022. Post-2014, borrowers had to prove they could still repay their mortgage, even if their mortgage rate increased above their lender’s standard average rate of 3%. The market has now inflated by 3%, and those same borrowers are struggling to find mortgages with affordable interest rates despite passing stringent affordability checks.
According to housing expert, David Hannah, the 800,000 now browsing for a new mortgage, is expected to apply further pressure on the UK rental market as many will turn to renting as an alternative option. Exacerbating a market which is already experiencing high demand and low stock due to an exodus of landlords in Q4 in response to lack of government support. Landlords that still have property available are expected to be forced to raise the rent in line with their mortgage increase. However, the increasing government scrutiny on potential capping of rent prices will cause inadequate renting conditions as landlords will need more disposable income to upkeep their properties to an acceptable level.
Despite the uncertainty for many invested in the property market, Hannah advocates for those with the financial means to take advantage of the consecutive four-month drop in house prices. Property website Zoopla has reported that the demand for housing had dropped by 50% in the year to December 2022, creating a noticeable decrease in house prices, with the rate of growth slowing from 4.6% to 2%, a significant fall from June’s high of 12.5%. Current buyers are expected to make a loss in profits if they were to buy in 2023; however, as the UK market has proven – it is one of the most stable markets across the world and will bounce back.
David Hannah, Group Chairman at Cornerstone Tax, discusses his predictions for the 2023 housing market:
“We have faced a massive set of instabilities. We’ve had two years of the pandemic, leading to necessary pandemic spending. As well asthe war in Ukraine, which has increased inflation which has led to a massive increase in interest rates. Recent government policy in the UK has led to a devaluation in sterling and at least one if not two regime changes in the conservative party, and all of these factors have added to a sense of uncertainty of what’s going to happen in 2023.
In early 2023 we will see slow demand. Only those people that are forced to sell will see a small fall in prices, however, over the whole of 2023, I expect to see low to mid to single-digit growth over the UK property market- between 5-8%. Despite the negative headlines we have been seeing, there is an underlying pressure on the market which is leading to upward pressure on prices.
The UK property market has tended to be more stable than any other global market in property.”
