Unprecedented economic and political turbulence has persisted throughout the latter half of 2022 and into 2023. This uncertainty, together with the cost-of-living problem and the impending recession, will undoubtedly have lasting effects on the UK property market. Learn more about Christian Hayes Danvers.
Here, I’ll try to sort through the clutter and provide his forecasts for the real estate market in 2023:
The interest rate will continue to grow.
As the very low-interest rates enjoyed by the UK over the previous two decades come to an end, it is evident that the 12-year-plus property market bubble is reaching an end. They have not exceeded 1% since the start of 2019. In contrast, the rate increased in the second half of 2022 as a result of the energy and cost of living crises. Although we do not anticipate another increase in the base rate in 2022, we do anticipate that it might reach as high as 3.5% by the end of Q1 2023 and possibly higher yet by the end of the following year.
Restrictions will be placed on who may borrow money.
This has a domino effect since banks are now less likely to give out mortgages to just about anybody. Mortgage rates have been historically low since 2008, but for many homeowners, this is their first encounter with numbers below 3%. Those who have been homeowners for a while may find the higher rates more manageable since they recall when rates were closer to 5 percent and even 15 percent in the 1990s.
However, the increasing rates are a bitter pill to chew, and for many people, it means that what they could afford at the start of 2022 is now out of their price range altogether because of growing inflation, rising stamp duties, and a cost of living problem.
A decrease in both supply and demand
Interest rates on new products are far higher than they’ve been in previous years, making it both more difficult and more costly to qualify for a mortgage. As a result, fewer individuals will be looking to relocate, which drives up housing prices. Usually, scarcity would lead to higher pricing, but in light of the present economic context, that seems unlikely to happen.
The allure of property investments may wane
When interest rates rise, property investment becomes less appealing since the returns aren’t enough to justify the cost. All of these variables point to a downward trend in property values. The more astute property owners are cashing out while they can and selling at auction. Some people will wait out the storm until they’ve made back at least some of their initial investment.
The only people that come out ahead in this market are the cash purchasers since the profit margin is gone and won’t be back for some time. Expect increased demand and, as a result, higher rental prices as competition increases for attractive rental homes among those who can.
Increasing numbers of people are participating in auctions.
Auctions are on the rise even if the overall rate of new house sales has slowed. During the last two months, My Auction has experienced a surge in the inventory of 77%. Those that are willing to sell usually want to do so fast. With an auction, you may be certain that your property will be sold. When the gavel drops, the contracts are officially swapped, resulting in a more streamlined process, more transparency, and a four-week reduction in total processing time. This is helpful for borrowers who are trying to finish off their mortgage applications before their current offers expire and are forced to reapply at higher interest rates.
Adaptations in the rental market
There was a whitepaper released earlier this year outlining the government’s intentions to make the private rental market more tenant-friendly. Plans call for stricter regulations that make it impossible for landlords to remove renters unless they intend to sell or move into the home themselves. Due of this, private landlords are caught between a rock and a hard place, and many will likely abandon the market altogether. Landlords will no longer be allowed to sign up renters for a specified term (such as 6 or 12 months) under the government’s planned white paper. As a result, all leases will be month-to-month arrangements, which is one more reason why many landlords will leave the business. Since many people will be unable to get a loan to buy a home, the number of available houses might drop to alarming lows.
Political upheaval and frequent changes in housing ministries
In the previous 25 years, there have been 20 different ministers of housing. Intervening in the real estate market every six to twelve months is a certain way to ensure that the market remains volatile and unsteady. Despite Liz Truss’ efforts to stimulate the real estate market by lowering stamp duty, no positive effects have materialized thus far.
It’s obvious that, regardless of your political leanings, we’ll never have a stable, fair, and sustainable property market as long as we keep moving in the same direction and people who obviously don’t understand the nuances of the property sector continue to meddle for the sake of electoral gain.