What’s in store for the UK property market in 2023?

2022 has certainly been an interesting year for the UK property market. Where the first half of the year witnessed rising house prices which peaked at an impressive 15.5% growth in July 2022 vs July 2021, the latter part of the year has been subject to accelerating mortgage rates, decreasing property values and market chaos. As a result, not only have house prices slowed over the last quarter, with the Nationwide House Price Index reporting a fall of 1.4% - being its biggest in two years – but rising inflation combined with a higher cost of borrowing is likely to have a negative impact on the property market both short and long-term. With that in mind, what is in store for the UK property market in 2023? And what should existing homeowners or first-time buyers consider if they are thinking of jumping on or moving up the property ladder? Let’s explore: Property prices will fall According to a recent report by the Financial Times, house prices are forecast to fall by at least 5% in 2023 and by a further 5% in 2024 before returning to growth the following year, as mortgage rates are likely to remain high. Between January 2022 to November 2022, mortgage rates have increased by over 4%, reaching in excess of 6% for the first time since 2010 as a result of Liz Truss’ disastrous ‘Mini Budget’. Although many lenders have since reduced their 5-year fixed term rate to below 5%, homeowners are still erring on the side of caution, with many unlikely to put their house on the market in 2023 – particularly following an additional increase in the Bank of England base rate to 3.5%. This is confirmed by recent research by Ready Steady Store, which found 51% of homeowners would no longer consider moving house due to rising mortgage rates - increasing to 66% in the East and West Midlands, 70% in South England and 72% in North England. In addition, 57% advised they wouldn’t move house due to concerns over growing energy and living costs, with 45% of respondents advising they would have moved house within the next 2 years if mortgage rates and living costs weren’t a growing concern. Some markets will remain competitive Despite a predicted fall in property prices, not all markets are forecast to experience a massive drop in value. For example, some experts believe demand for property in sought after locations, like London, will remain high [despite the fact others believe the Capital will experience the greatest fall] and areas with strong rental yields like Burnley [7.92%], Hartlepool [7.64%] and East Ayrshire [8.48%] are also forecast to remain competitive. In fact, the rental market will continue to soar during 2023, with leading agent, Savills, recently reporting UK rents reached 14.0% above their pre-pandemic level (March 2020) by August 2022. This coupled with the fact there were 26% less houses to rent in Q3 of 2022 means demand currently far outweighs supply for those looking to move home within the rental market - many being first-time buyers unable to secure their spot on the property ladder amidst current mortgage rates. As a result, the high levels of rental value growth will persist throughout the UK into early 2023 and beyond, with Landlords likely to hit or exceed yields equivalent to pre-pandemic levels. Homeowners will ‘repurpose’ their properties With many homeowners ‘put off’ from putting their houses on the market during 2023, it is likely that they will opt to ‘repurpose’ their properties instead, overcoming common drivers to move like lack of space or size, by modelling their existing homes or even opting to extend. This is reinforced by recent research by Ready Steady Store, which found 71% of homeowners advised they would or would maybe consider alternative options for creating more space within their existing home as opposed to putting their house on the market; with a further 40% revealing they would or would maybe consider moving their belongings into storage to create more space. This follows a recent market report by Rightmove, which revealed a 1,046% increase in the implementation of garden offices to accommodate remote and hybrid working, together with a 28% decline in dining rooms as homeowners shift to open plan living. Conclusion Despite the current economic challenges besieging the property sector, purchasing a property to either live in or rent out is still considered a sound investment, as long as the buyer perceives it as a long-term decision. Byline: Mehran Charania, Director of Ready Steady Store

What’s in store for the UK property market in 2023?

Despite a predicted fall in property prices, not all markets are forecast to experience a massive drop in value.

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