After reaching 14-year highs in October, interest rates have begun to fall.

In the United Kingdom, the cost of a fixed-rate mortgage is levelling off as homeowners and landlords prepare for a key year in the country's housing market.

According to Moneyfacts Group Plc, the average two-year fixed-rate house loan was 5.79%, close to the 5.8% level that it had been hovering around for the previous three weeks. The rate had risen to a 14-year high of 6.65% on Oct. 20, following then-Prime Minister Liz Truss's mini-budget, which sent rates skyrocketing.

After reaching highs of more than 6.5% in October, the average five-year fixed-rate mortgage stayed at 5.63%.

Rate stability may create some relief amongst purchasers and landlords as they prepare for the first yearly dip in property prices in a decade. House prices in the United Kingdom declined for the fourth month in a row in December, the longest slump since the financial crisis. Economists predict that homes will lose up to 10% of their value next year.

"The abrupt surge in mortgage rates and plummeting property values means that greater dangers may materialise for landlords in 2023," said Daniel Chard, conveyancing attorney at Bird & Co Solicitors.

Mortgage costs are expected to stay high for a few years, according to the Office for Budget Responsibility, which means that consumers who refinance within the next year may see their payments treble. According to a survey by broker Savills Plc, UK buy-to-let investors are expected to be among the most impacted by the quick change in Britain's house loan affordability.

This is supported by Bank of England Deputy Governor Jon Cunliffe, who has already warned that some of the UK's 2 million buy-to-let owners may be obliged to sell "and take capital profits" because the great majority are on interest-only leases.

A financial squeeze for buy-to-let landlords would have an immediate impact on rental property, which is already scarce. According to Zoopla, the cost of a new rental agreement increased 12.1% in the year to October, greatly above the average annual income rise of roughly 6%.

Rents are expected to rise at a slower rate next year because landlords will be unable to put even more strain on renters' finances in the midst of a cost-of-living crisis, according to the research.

"Growing interest rates will expose many landlords, particularly those renting just one or two homes, to the very real prospect of losing money on the properties they let," said Chris Norris, policy director for the National Residential Landlords Association. "In such conditions, it would simply be unprofitable for them to remain in the market."

Homeowners may find solace in Cunliffe's suggestion that a pandemic-driven housing price boom implies that even a 20% drop in values will not create pain for most homeowners. According to Savills, house price declines will be reversed by 2026.