Nationwide has predicted house prices will fall by 5 per cent next year as activity is expected to stabilise to just below pre-pandemic levels.

The prediction from the UK’s largest building society suggests a softer landing for the property market in 2023 than others have forecast, despite the choppy economic conditions.

The Government’s Office for Budget Responsibility forecast a 9 per cent fall in the next two years, estate agent Savills predicted a 10 per cent fall in 2023, and Rightmove founder Harry Hill said house prices could drop 20 per cent if the UK entered a deep recession. 

 Early signs show that property price growth is already starting to slow, with Halifax reporting a 2.3 per cent or £6,800 fall in November. 

Robert Gardner, Nationwide Building Society’s chief economist, said: ‘It will be hard for the market to regain much momentum with economic headwinds set to strengthen, as real earnings fall further, the Bank of England moves interest rates higher and with the labour market widely projected to weaken as the economy shrinks.

‘The risks are skewed to the downside, but there is still a good chance that we can achieve a relatively soft landing next year with activity stabilising modestly below pre-pandemic levels and house prices edging lower, perhaps by around 5 per cent.’

Furthermore, while mortgage rates are falling they are yet to go back to the levels seen before the autumn when they shot up in the wake of September’s ‘mini-Budget’.

On 1 August 2022, the average two-year fixed rate across all deposit sizes was 2.52 per cent, according to data from Moneyfacts.

The figure peaked at 6.65 per cent on 20 October with the five-year fixed rate at 6.51 per cent on the same day. However, average fixed rates for both two and five year mortgages have steadily fallen since.

Most now expect mortgage rates to settle somewhere between 4 per cent and 5 per cent next year. 

Currently the two-year fixed average is 5.8 per cent, while the five-year is at 5.61 per cent, continuing to fall despite the Bank of England’s recent rate rise to 3.5 per cent; it’s highest level since October 2008.

However, in contrast to Nationwide, others believe the fall in house prices will run into double digits.

Estate agency Knight Frank expects values to fall by 10 per cent over the next two years as buyers and sellers ‘recalculate their options’.

‘Mortgage rates will eventually settle at least 2 percentage points higher than they were this spring, which means it could be a “wake up and smell the coffee” moment for the housing market,’ said Tom Bill, head of UK residential research at Knight Frank.

‘Higher borrowing costs will keep transaction volumes in check and result in more widespread price declines in 2023.’

Savills’ November forecast of a 10 per cent fall in 2023 represented a far gloomier outlook than the prediction of a 1 per cent drop it made in May. 

However, the estate agent said it expects prices to rebound and rise 1 per cent in 2024 – a marginally more hopeful outlook than rival knight Frank.

Earlier this month Nationwide’s latest house price index revealed house price growth slowed to just 4.4 per cent in November, down from annual property inflation of 7.2 per cent the month before. Between October and November house prices fell by almost £4,500.

This 1.4 per cent decline was the largest monthly fall since June 2020 and more than the 0.9 per cent fall recorded between September and October.

Further sign of market cooling came from Rightmove that reported the average asking price fell by nearly £8,000 in December, the largest slip in almost four years. 

The property portal said the fall was triggered by the mortgage crunch as home sellers ‘adjusted their expectations’ in the new market conditions.

The asking price of the average home for sale is now £359,137 compared to £366,999 last month, it said.