The Guild of Property Professionals CEO, Iain McKenzie, caught up with property market analyst and CEO of Twindig, Anthony Codling, to discuss what his thinks we could see in the property market during 2023.

McKenzie says that one of the most important metrics for the property sector is transactional volumes. “As I have mentioned before, house prices will go up and down and agents will be able to negotiate that element of the transaction, but from an estate agency business point of view, transactional volume will have the biggest impact. What do you think we will see happen with house prices and property transactions in 2023?” he asks

In response, Codling says he thinks that house prices are currently 8% ahead of trend, so he forecasts that house prices will come down by that amount next year. “While I think house will come down 8%, that is still 16% higher than the house prices we saw at the start of lockdown one. I think that house prices have got ahead of themselves due to aspects such as higher demand created from the stamp duty holiday and people having more savings during the pandemic. Unfortunately, now we are seeing the rising interest rates closing people out of the market, and because they are no longer participating, they obviously won’t have an impact on house prices going forward,” he adds. 

In terms of transactional volumes, Codling says that the housing market has never got back to the numbers seen before the global financial crisis. “Transactional volumes dropped after the financial crisis, increased a bit, and then stabilised at a lower equilibrium, which was around 1.2 million transactions a year. My view is that this happened because a lot of people were priced out of the market because of deposits. People needed access to a higher level of deposit then they did before the financial crisis, and I think we may see a similar pattern with interest rates pricing people out of the market. That said, if you have access to a deposit and can get a mortgage at the right loan-to-value, mortgages are still affordable and in the context of history, even though interest rates are increasing they are still affordable. We are currently spending around 15% of our income on mortgage repayments, while the long-term average is around 19%, so in that sense, it is affordable,” he comments.

“This year I forecast there would be approximately one to 1.1 million transactions, and I think we will actually be closer to 1.25 million by the end of the year. Looking to 2023, I think we could see just under a million transactions, which is down but still a high volume of transactions and a lot of people moving home,” says Codling.

“What do you think will happen with inflation?” asks McKenzie, “You mentioned that you think inflation will start to come down in the second half of next year, have your thoughts changed?”

In response, Codling says that he thinks inflation will be at around 3% at the end of 2023. “Inflation is a forecast I would be happy to be wrong on, in that I would love to see it lower than that, and within the targeted 2% range. As it stands, we still think that the bank rate will peak at approximately 5.25% around September next year, where after, it will start to come down, perhaps not as quickly as it has increased, but I think we will be on that path from September onwards.  With 96% of people currently buying a home with a fixed-rate mortgage, and 85% currently with a fixed-rate mortgage, for many the current movement in interest rates won’t affect them because they are in a fixed-rate period. I think people whose fixed-rate period ends in September next year, or better still, 2024, they will be pleasantly surprised by the rate at which they will be able to remortgage compared to what the market is doing now,” he comments.

To listen to the full conversation, visit The Home Stretch podcast.