We have now entered the second half of 2023 and it is an understatement to say that the first six months of the year have been busy in the UK property market.
There is uncertainty in the air and lots of talk about house prices, but it is not quite accurate to say everything is worrying or bad news. In this market update, we have examined some of the day’s major issues and suggested a possible solution for potential homebuyers and investors who are not keen on what 2023 has to offer them so far.
Rents
The UK rental market continued to perform well over the last month. The Office for National Statistics (ONS) reports average national rental growth of 5% over the last month on record, with a very slightly higher increase in London. This monthly increase is the highest since the ONS kept started keeping records in this area in 2016.
Tom Bill, head of UK residential research at Knight Frank, said: “Upwards pressure on rents is unlikely to relent any time soon.”
The reason behind the ongoing rent rises is the same as always – there is not enough supply to meet demand, especially in the biggest city markets where luxury city centre living is in particular demand. However, the problem is even more prominent at the moment thanks to mortgage rate increases which are keeping even more people in the rental sector.
In the meantime, this is good news for investors who are likely to see higher returns on their assets as time goes on. For more on the mortgage situation, please read on below.
House prices
Whether the average house price is falling or not depends on who you ask. Nationwide reported in June that the average fell by 0.1% year-on-year, whereas Zoopla data shows that the average is up 1.2% annually.
What is clear is that the double digit growth seen as recently as one year ago has temporarily slowed and we may be at something of a standstill in that regard. It is also apparent that reports of serious house price falls are overstated and that, if anything, they are simply holding steady. In a time of economic uncertainty, that is not the worst outcome by any measure.
As always, it is worth noting the areas where this trend is being bucked and house prices continue to grow at twice the national average or more. These include Birmingham (2.7%) and Manchester (2.3%) – strongholds for buy to let property investment in particular which continue to outperform everywhere else. This can be taken as a sign of strong underlying demand and a lack of supply which keeps pushing the market onwards even while conditions might theoretically work against property.
Mortgage rate rises
The biggest issue in property today is the increasing cost of mortgages which has risen to 6%. The Bank of England recently raised the base rate of interest to a 15-year high of 5% and this is having consequences. As mentioned previously, homeowners are staying in the rental sector longer as mortgages are becoming less affordable. Investors too are wondering whether this is a good time to invest with the higher cost of borrowing.
In the short term, most analysts agree that mortgage costs are likely to remain high, and may even go higher before the year is out, creating a major problem for people’s whose fixed terms are coming to an end.
Beyond that, they are expected to begin falling again by mid-2024 as inflation comes back under control and the Bank of England begins cutting the case rate again. If this occurs, it is anticipated that mortgage rates will follow.
Strategy for buyers
With this in mind, there is a clear strategy for homebuyers and investors who are considering a purchase now but are concerned about the cost of a mortgage. If you buy off-plan, you can lock in a property at a below market rate and pay the balance in the future on completion of the project.
Many off-plan projects have construction processes that won’t finish for at least two years, making it possible that you could be paying for the property in the future when mortgages have gone back to more normal rates – and escaping the current mortgage market while still securing a property.
The UK property market is in an interesting place and our team are ready and waiting to advise you on the possible next steps whether you are a homebuyer or an investor. Get in touch with our experts today by clicking here >>
