Nationwide Building Society has predicted a fall in UK property prices of 5% in 2023, which it suggested would be a ‘soft landing’.

It also forecast further rises in the Bank of England Base Rate and a rise in unemployment.

Robert Gardner, Nationwide’s chief economist, said: “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%.

“The Bank of England is likely to raise interest rates a little further, although in recent years most borrowers have opted for fixed rate mortgages which are linked to longer term interest rates that may have already peaked. If so, this will help provide some support to affordability as will solid gains in nominal earnings growth and modestly lower house prices.

“Many forecasters, including us, expect the unemployment rate to rise to around 5% in the years ahead – this would represent a significant rise from the current rate of 3.7%, but would still be low by historic standards.”

Review of 2022

The building society said that the housing market remained remarkably resilient this year until the mini-Budget, with annual house price growth in double digits. Between January and August, the average UK house price increased by almost £20,000, from £255,556 to £273,751.

However, Gardner added that the financial market turbulence which followed the mini-Budget at the end of September was ‘a major shock to the housing market’.

He said: “The number of mortgage applications slumped towards the lows seen at the start of the pandemic as a spike in long-term interest rates quickly fed through to mortgage rates and fundamentally changed the affordability dynamic for prospective buyers.”

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, agreed: “The aftermath of the mini-budget brought the market to a screeching halt with providers pulling deals off the table and mortgage payments heading skyward.

“It has truly shaken confidence, with would-be buyers now increasingly hesitant to come to market – a fact confirmed by recent data from the Building Societies Association (BSA) showing housing market sentiment close to all-time lows.”