Last year was an interesting 12 months in the world of property and investment as the cost of living crisis hit and interest rates went up – with knock on effects for mortgages and house prices.
The big story which developed over the second half of 2022 was that house price growth in the UK began to slow. By the end of the year and into January 2023, the latest UK House Price Index from Zoopla shows that growth stalled entirely. When the year is considered as a whole, average growth in house prices across 2022 was 6.5%. This is substantially lower than the double digit price growth seen in recent years.
Most regions saw falls in the last quarter of 2022, driven by a fall in demand of up to 50% according to the same figures. While there is normally a small drop in demand at this time of year as the winter holiday season approaches, this one stands out as a product of a wider affordability crisis in the UK.
Furthermore, it appears that the fall in demand has influenced many into dropping their asking prices. If this continues it could lead to further price falls. Altogether, the data makes it clear that the property market could take time to get back up to maximum speed in 2023.
Richard Donnell, executive director of research at Zoopla, commented on this, saying: “It’s going to be a slow start to 2023 but we expect demand to pick up in the coming months as the economic outlook becomes clearer and mortgage rates settle around 4% to 4.5%”.
However, the signs are there to show that things are likely to improve again before long. Demand in January 2023 was only 23% below the five-year average – which sounds like a big fall, but is actually in line with pre-pandemic housing demand, and 10% above that seen in 2019. The last three years have been exceptional with the pandemic reshaping everything. Now, higher mortgage rates and living costs have returned demand to normal levels which are a good sign for the market’s long-term health.
When viewed like this, it is clear that the housing market is not in such bad shape as is often assumed by news reports. Healthy demand is preferable to runaway demand, and could be the most important indication for the future.
There is likely to be a period of time where people wait and see whether house prices continue to go down before buying or selling again. However, over time, the rising demand will win out and the number of people moving will increase.
In addition, mortgage rates are likely to continue falling as the worst of the interest rate increases and inflation crises pass. The rates have already fallen below 5% on average – much lower than in 2022 – and are likely to continue doing so. This will stabilise the market further and lay the foundations for future growth.
The final trend noted in January is that demand is highest in the apartments market. People becoming more value conscious naturally means that the popularity of luxury city centre properties are going to be more attractive. The Zoopla data shows that 27% of new buyers are looking for one- and two-bed flats, up from 22% a year ago.
Furthermore, demand for three-bed flats continues to rise as we have discussed previously. You can read more about what makes a three-bedroom property such a good investment by clicking here.
Overall, it is those city centre markets such as Manchester and Birmingham which will benefit the most in 2023.
The Zoopla data shows that while we may be in for a slow start to the year, this is because the market is on the verge of real growth again – in other words, we are witnessing the start of a new beginning rather than being in the middle of a negative period.
This is an ideal time to look at city centre apartments and capitalise before prices begin to rise rapidly again. By doing so, you can get the lowest possible price and be in a position to achieve the maximum possible return in the future.
For more information about the UK property market in 2023, its potential for growth and our available property opportunities, get in touch with the team today by clicking here >>