What happened to the housing market in 2023?

In 2023 one million homes were sold, as mortgage rates soared to over 6% and house prices fell 1.2%. Let’s take a look at the year that was.

2023 was the year we saw five bank rate rises, with mortgage rates peaking at 6.44% for a two-year fixed rate, 75% loan-to-value deal.

In the first half of the year, house prices began to fall in southern regions of the UK, but held their own in the north, where homes remain more affordable.

But by the end of 2023, prices began falling across all price bands in all regions of the UK.

In total on average, house prices fell 1.2% over the course of the year.

Bank rate rises and mortgage rate hikes

The bank rate rose five times in 2023, in three increments of 0.25% in March, May and August, plus two 0.5% rises in January and June, taking it from 3.5% in January to 5.25% today.

The effect on mortgage rates was dramatic.

The average five-year fixed rate mortgage went from 5.05% in January to peak at 6.37% in early August. It now stands at 5.22%

The average two-year fixed rate mortgage went from 5.43% in January to peak at 6.44% in July. It now stands at 5.94%.

The average standard variable rate mortgage is now an eye-watering 8.74%, up from 6.61% at the start of the year.

The volatility of mortgage rates throughout the year meant that Google was inundated with search queries on the topic: with buyers and homeowners searching up mortgage related information every 23 seconds. That’s 3,757 times a day.

In terms of housing sales, the impact to buying power was felt across the market, as buyers found their budgets effectively reduced by 20% in the face of higher mortgage costs.

What happened to house prices in 2023?

House prices fell 1.2% on average across the UK during 2023. Depending on where you live, your home’s value could be down 2.6% or up 1%.

The biggest annual falls have been seen in the East of England (-2.6%), the South East (-2.4%) and London (-2.0%).

And in terms of UK cities, Bournemouth (-2.6%), Southampton (-2.3%) and Cambridge (-2.3%) have been the worst hit.

Scotland (+1%) and Northern Ireland (Belfast house prices are up +2.3%) are the only UK regions where house prices are still rising in December 2023.

The average seller discount now stands at 5.5% or £18,000 off the asking price.

That said, property prices remain well above what they were before the pandemic, even in the places with the biggest house price falls.

That meant the detached homes that became so popular during the pandemic ‘race for space’ proved harder to sell in a more expensive financial market.

Meanwhile flats started to regain popularity, being more affordable for first-time buyers.

Homes sold in 2023

How long did it take to sell a house in 2023?

At the start of 2023, it took 36 days to sell a home on average but by April, that figure reduced to just 29 days. Today, it takes 38 days to sell a home.

Why? At the beginning of the year, the housing market remained fairly buoyant as mortgage rates started to come back down from the highs experienced at the end of 2022.

As rates edged closer towards 4%,demand increased alongside the number of sales agreed.

And while the actual number of homes that went under offer was 16% down on the boom years of 2020-2022, sales numbers were 11% up on 2019.

However, as the year went on, inflation remained stubbornly high and mortgage rates started to creep back up over 5% – and this put the breaks on for some buyers.

What happened to the rental market in 2023?

2023 was a difficult year for renters, with rents for new lets consistently rising at 10% or more for at least 20 months in a row.

Scotland recorded the fastest growing rents at 12.7%, where rent controls pushed landlords to maximise their rents for new lets.

Despite this, demand for rental properties remained strong – holding at 51% above the 5-year average for most of the year.

A shortage of rental properties and lack of growth in supply helped to drive up prices.

Meanwhile, rising mortgage costs affected the rental market in two ways:

1. Landlords began exiting the sector as their rental properties proved less financially viable in terms of income

2. Potential first-time buyers remained in rented accommodation for longer, biding their time in the hope that mortgage rates would start to fall again.

Over the last decade, the average rent as a percentage of gross earnings has tracked in a narrow range between 25% and 28%, averaging around 27.2%.

However, double digit rental growth over the last 20 months now means rental affordability is at its worst level for over a decade at 28.4%.

Levels of home building and net new investment by private landlords are falling and set to remain weak into 2024, largely because of higher borrowing costs.

Key takeaways

• One million homes sold in 2023
• House prices fell 1.2% on average across the UK
• The Bank of England hiked the bank rate five times
• Mortgage rates peaked at 6.44% for a two-year fixed rate
• Standard Variable Rate mortgages hit 8.74%