From the better value of flats to discounts and price falls, here’s how a slower housing market could benefit first time buyers in 2023.

Low mortgage rates have meant first time buyers could often afford a three bedroom semi with a double driveway and a big garden over the past 2 years.

But with mortgages more expensive – plus higher living costs – you might be wondering about your chances of stepping onto the property ladder in 2023.

Our latest House Price Index shows buyers have been stepping back from the market, with demand down 50% against this time last year.

But a slower housing market can bring opportunities for first time buyers. If you know where to look and when to make your move.

Let’s take a look at how you could step onto the property ladder in 2023.

Look to flats for better value for money

Price growth for flats has been much slower than for houses in the last 10 years. This means a flat could give you the chance to buy at a cheaper price for greater value for money.

After the pandemic, there was a rush towards houses as everyone wanted more space. Demand for flats dropped and values rose at a slower rate than house values.

In London, you’ll spend 1.7 times more on a house than you will on a flat. 10 years ago, a London house was only 1.4 times more expensive.

It’s a similar picture across the rest of the UK, where you’ll pay 2.1 times more for a house than a flat – the highest differential in 20 years.

If you want to save money by buying a flat, make sure you’re aware of the extra costs and considerations.

Check if the property is for sale as freehold or leasehold, find out the cost of service charges and ground rent, and make sure it’s clear who will pay for repairs and maintenance to the building.

We expect more buyers to realise the relative value to be found in flats in the coming months, which will increase demand for flats later in 2023. This will also be supported by the government’s commitment to fix cladding issues, which impact a small proportion of flats in the UK.

Put in an offer: sellers will be more open to negotiations in 2023

Sellers are now accepting offers 4% below asking price on average, which works out to a £10,500 discount on the average home right now.

It’s already a big change from a few months ago – in October, buyers were not getting any wriggle room from sellers and we recorded an average discount of 0%.

We think this trend will keep going and you may be able to get an even bigger discount from sellers in 2023.

If you’re looking to buy soon, keep in mind that December is not usually the best month for discounts or reductions to asking prices.

It might be worth making that cheeky offer in the New Year instead, as sellers often wait to see if new buyers will come into the market the first week of January.

Keep an eye out for small drops in house prices

While house prices are up 7.2% over the last year – or £17,500 on average – price growth has stalled since the summer.

In the last 3 months, house prices have only risen 0.3%, compared to 2% in the summer.

And we’re expecting to see house prices fall in the first part of 2023, with annual price falls coming in by mid-year.

If our predictions are right, it’ll be the first time we’ve seen annual price falls for years, meaning a small respite for first time buyers who have faced continually rising prices and strong competition.

Generally speaking, the biggest house price falls will come in the south of England, where house prices are more expensive.

If you’re looking to buy in a high value market, this could give you the chance as competition eases and sellers start to reduce their prices to achieve a sale.

While you might find it harder to get a mortgage, buying remains cheaper than renting an equivalent home everywhere in the UK apart from London.

When you’re looking at homes for sale, check if the price has already been reduced with our ‘listing history’ tab. It can give you an idea if there might be room for the price to be discounted.

Be ready to move quickly in affordable urban areas

In lower-value markets, we’re still seeing high demand as mortgage rate rises have had less of an impact.

Demand is tracking at above average levels in affordable urban areas like Bradford, Swindon, Coventry, Crewe, Milton Keynes and Southend.

But first time buyers have the advantage of flexiblity and the ability to progress quickly, which gains even more favour among sellers in a softening market.

We expect these affordable areas will see above-average house price rises in the next year – but it’ll be at a much slower rate than in the last 2 years.

So if you need to save for a little longer or want to see if mortgage rates drop further, you won’t be seeing the same price rises as recent years and may find you’re in a better position by mid-2023.

Director of Research and Insight, says: “First time buyer demand is expected to hold up in 2023 as the rapid growth in rents makes buying look attractive – even as mortgage rates increase.

“This is particularly the case in regions outside the south of England where mortgage repayments are lower than monthly rental costs, even with 5% mortgage rates.

“Rents are expected to rise further in 2023 adding to the impetus to buy. However, raising a deposit will remain the biggest challenge for first time buyers as the best mortgage rates will be for lower loan-to-value mortgages.”

Whatever your situation, we always recommend getting independent financial advice before you go ahead.

Key takeaways

  • Flats are offering the best value for money for 20 years across most of the UK
  • Sellers are already giving 4% discounts on average and they’ll be even more open to negotiations in 2023
  • House prices will start to drop in the new year, with the most expensive areas seeing the biggest price falls
  • Many urban areas are still affordable despite high demand, including Bradford, Swindon, Coventry, Crewe, Milton Keynes and Southend.