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First-time buyers ask are house prices dropping yet?

The cost of living crisis has hit many of us hard; as such, we are now trying to save money where we can.

It’s not easy to save during this period of high energy bills and rising grocery prices but in Jeremy Hunt’s Autumn statement 2022, the minister has pledged to offer more government support to those who need it in the coming months. He has also announced tax rises and spending cuts to repair Britain’s public finances after September’s mini-budget which created further problems in the economy.

The current crisis has created all kinds of issues, especially in the housing market. First-time buyer homes continue to be in the most affected category as financial uncertainty has made it difficult for new home buyers to raise the money for a deposit.

The increase in house prices over the last couple of years has made it even harder for buyers to save up for their first home and the rise in mortgage rates hasn’t done much to instil hope in those looking to get on the property ladder.

Mortgage interest rates are unlikely to fall anytime soon but there are signs that property prices are decreasing, which may be good news to you if you’re hoping to buy a property soon.

In this guide, we will explore how much a property could cost in 2023 and how the potential drop in house prices could affect your chances of getting onto the property market.

Are falling house prices good news for first-time buyers?

Should the average house price drop, first-time buyers may be able to purchase a house with a smaller deposit, which will be good news for those unable to save up for a larger down payment.

However, this is dependent on the loan-to-value (LTV) mortgages offered by lenders. Due to current economic uncertainty, they may lower the LTV on their loans and this will necessitate the need for higher deposits from home buyers. High LTVs are still available at the time of writing but we will be keeping a close eye on the mortgage market in the coming months to check on any changes.

If buyers are able to make a smaller deposit, they will still face higher mortgage costs due to the sudden jump in interest rates. This will have an effect on their monthly mortgage repayments so mortgage affordability could be an issue for some.

If you’re worried about borrowing costs, the team at YesCanDo Money can help. Despite the steep rise in interest prices, we can explore the mortgage market on your behalf to help you find the lenders and mortgage deals that are right for your financial circumstances. If you lock in a fixed deal now before interest rates continue to rise, you will be able to save money on your mortgage for the next few years.

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Average house price England, January 2005 to August 2022

Below is a graph of the average house prices by English region from 2005 to 2022. As you can see London continues to have the highest average house price in England.

average house prices England

Are house prices falling?

The average house price in the UK rose over the last two years with an increase of almost £50,000 since 2020, according to the Nationwide house price index. Low-interest rates and a shortage of housing stock were the driving force for increased house prices but the situation is now changing. In a bid to tackle inflation, the Bank of England has risen interest rates, and this, combined with the number of homeowners trying to sell their unsold properties, has caused a decline in house prices month on month in recent times.

The rate of decline is highlighted on the data collected by the individual House Price Indices used by banks, property sites, and the HM Land Registry whose data is calculated by the Office for National Statistics. The way they collect data varies from one to another but all the figures point to the same thing: house prices are falling.

Figures from the Halifax House Price Index indicated a 0.4% dip in October 2022, which was a further decrease from the previous month.

Recent data taken from the property website Rightmove House Price Index indicated an average fall of 1.1% in house prices in November 2022.

Further information from the property website Rightmove shows the average price tag on a property in the UK fell by more than £4,000 in November compared with the previous month. This is a steep drop and there is a chance that prices will drop further.

Analysts predict the average house price will continue to fall month on month in 2023. Forecasts suggest they will fall by 5% and again in 2024 before starting to grow, but time will tell if their analysis is proven correct.

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How much would a house cost me if prices fall in 2023?

According to the UK House Price Index, the average price for a house was £296,000 in August 2022. If property prices fall as predicted, you will pay less than this for a house in 2023 but the exact amount you pay will depend on a number of factors. These include:

  • The location
  • The demand and availability of property in the area you’re buying
  • The type of property you’re buying

As a guide, the table below shows the average price of properties on the housing market in 2022 and how much a property might cost in 2023/24 if UK house prices fall by 5% or 10%.

Region Average property price in 2022 Property price after 5% fall  Property price after 10% fall 
North East £164,395 £156,175 £147,956
North West £219,025 £140,558 £197,123
Yorkshire and Humber £212,313 £201,697 £191,082
East Midlands £255,114 £242,359 £229,603
West Midlands £255,202 £242,442 £229,682
East of England £364,885 £346,641 £328,397
London £552,755 £525,117 £497,480
South East £406,981 £386,632 £366,283
South West £335,927 £319,131 £302,335

Is a fall in house prices good?

As we established earlier, a fall in house prices is both good and bad. Smaller deposits can mean first-time buyers can get on the property ladder sooner but if they have less disposable income because of the current economic crisis, they may struggle to get a mortgage if they don’t pass the lender’s affordability checks for higher mortgage payments.

Mortgage approvals have decreased in recent months because rising interest rates have caused lenders to tighten their affordability criteria. Lenders are worried that buyers could default on their mortgages because of pressures related to the cost of living crisis, such as high energy bills and the lack of job security for some.

If you’re able to prove a future stable income, you may still be offered a mortgage. However, it is wise to make spending cuts on anything that isn’t essential, such as subscriptions to streaming services, to improve your affordability for a mortgage.

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How much deposit will I need as a first-time buyer in 2023?

Analysts predict the average property price will continue to fall month on month throughout 2023. As mentioned above, some forecasts are suggesting that prices fall by 5% in 2023 and again in 2024 before starting to increase.

The table below illustrates what a deposit could cost in 2023 based on the average UK house prices in 2022 with a 5% price drop.

When viewing the below table on a mobile, swipe left ← to view the off-screen columns.
Region Average property price in 2022 5% Deposit 10% Deposit 15% Deposit
North East £164,395 £8,220 £16,439 £24,659
North West £219,025 £10,951 £21,902 £32,854
Yorkshire and Humber £212,313 £10,616 £21,231 £31,847
East Midlands £255,114 £12,756 £25,511 £38,267
West Midlands £255,202 £12,760 £25,520 £38,280
East of England £364,885 £18,244 £36,488 £54,733
London £552,755 £27,638 £55,275 £82,913
South East £406,981 £20,349 £40,698 £61,047
South West £335,927 £16,796 £33,592 £50,389

Lower property prices, higher deposits

In theory, you may be able to make a smaller deposit on a property if UK house prices fall in 2023. But as we mentioned earlier, there is a chance that lenders could limit the number of high LTV mortgages they offer to borrowers if average house prices continue to fall. As such, you could be asked for a deposit between 15-20%.

The table below illustrates how much a deposit could cost in 2023 if average UK house prices fall by 5%

The actual amount you will have to pay on a deposit will depend on your personal and financial circumstances. If you have a bad credit history, for example, you may have to pay a larger deposit than somebody with a good track record of managing their finances.

The size of your deposit will also depend on the mortgage lender you choose. They each have their own criteria so while one lender might ask you for a 15% deposit, another lender may be willing to give you a mortgage at 5 or 10%.

When viewing the below table on a mobile, swipe left ← to view the off-screen columns.
Region 2022 Average property price 5% drop 5% Deposit 10% Deposit 15% Deposit
North East £156,175 £7,809 £15,618 £23,426
North West £140,558 £7,028 £14,059 £21,084
Yorkshire and Humber £201,697 £10,085 £20,170 £30,255
East Midlands £242,359 £12,118 £24,236 £36,354
West Midlands £242,442 £12,122 £24,244 £36,366
East of England £346,641 £17,332 £34,664 £51,996
London £525,117 £26,256 £52,512 £78,768
South East £386,632 £19,332 £38,663 £57,995
South West £319,131 £15,957 £31,913 £47,870

Having taken the business through 2 previous recessions my advice to first-time buyers is to save save save! If you are renting at present your current rent may well equal the monthly payments if you were to have a mortgage. Therefore are you better to buy a property in 2023 and starting to pay the mortgage off? The past has shown that if the average house price decreases over a short term they usually bounce up in a matching term. Therefore we could be in a situation that sees house prices drop for the first 6 months of 2023 and then increase for the second half of 2023. This would mean that house prices would be the same at the end of 2023 as at the end of 2022. – Stephen Roberts

Our team is here to help. We will calculate your affordability for a mortgage after getting to know your circumstances and will advise you on the lenders and deals that are right for your financial needs.

Let's have a chat about your first mortgage

Can a larger deposit be a good thing?

We understand that some customers may struggle to stump up the cash for a larger deposit due to the current financial crisis.

But if you can save up for a larger deposit, there are benefits. For one thing, you will be eligible for deals with the best mortgage rates as lenders offer these to buyers who can pay more upfront. As such, the overall cost of your mortgage will be smaller due to the reduced interest on your loan.

As you will have paid for a larger percentage of your home upfront, you will own more of your property and this means you will have more equity in your home. This is important because the more equity you build, the lower your LTV will be when you decide to remortgage. This could equate to lower mortgage interest rates and smaller monthly repayments.

The more equity you have at the beginning of your mortgage the better as this could offer you a safety net if house prices continue to fall. If the changes in the property market cause you to go into negative equity, you could become financially vulnerable.

What is negative equity and why is it bad?

When a property is in negative equity, it is worth less than the mortgage secured on it. Negative equity can occur when house prices drop during a time of great economic uncertainty. This happened during the global financial crash in 2008 when the average UK house price fell by 20% in 16 months.

House price estimates aren’t at this stage now and there is a chance that the financial markets could settle before there is an increased market frenzy. But if you do buy a home that does go into negative equity, you may struggle to move or remortgage when your initial mortgage deal ends.

What does this mean for you right now? Well, you might want to delay your house purchase until there is house price growth within the housing market. But if you aren’t prepared to wait, you should raise the cash for a higher deposit or try to find a seller who is prepared to sell their house at below-market value. The latter may be possible if the homeowner wants to make a quick sale or if a surveyor finds any faults within the property you want to buy.

After moving into your first property, you can then build equity by overpaying on your mortgage and by increasing the value of your home.

Selling a home with negative equity

If your home does fall into negative equity, selling it should be your last resort. It’s better to ride out the current economic downturn until there is increased house price growth in the housing market.

If you do want to sell your house, despite it being in negative equity, you will need your mortgage lender’s permission. They will send you a bill for the money you still owe on your mortgage and you will need to agree to a repayment plan with them. If you don’t make the required payments, the lender could take you to court.

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Where can first-time buyers go for mortgage advice during the cost of living crisis?

If you’re looking to get a foothold in the property market, a mortgage broker will be a vital service to help you during this turbulent time.

YesCanDo Money: First time buyer mortgage experts

We are whole of market mortgage brokers, meaning we have access to the widest range of lenders on the market. After getting to know more about you and your financial circumstances, we will search the market for the lender that is able to offer you the most affordable mortgage rates.

We will also advise you on the schemes available within the first-time buyer sector if you need help raising a deposit for your mortgage. Should you be worried about your eligibility for a mortgage, your appointed advisor will also give you advice on how you can improve your mortgage chances.

We will do all of this for you and so much more, from liaising with your solicitor and estate agents on your behalf to completing your mortgage application for you. Our services are FEE-FREE so while the current economic crisis may be taking its toll on your household finances, you can be assured that you will have one less expense to worry about if you turn to us for advice about your future mortgage.

To learn more, give us a call on 033 0088 4407 or make an enquiry via WhatsApp or our contact form. We’ll set up a free, no-obligation chat with a mortgage advisor for you today.

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Steve Roberts
Steve Roberts

Stephen Roberts MAQ is the founder of YesCanDo Money, one of the UK's largest no-fee mortgage brokers. With over 30 years of mortgage experience, he has advised and helped thousands of first-time buyers buy their first home and home movers buy their dream home. Speak to a mortgage expert today by completing our contact form:

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