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UK Property Market 2023 - What Will Happen to The Market?

UK Property Market 2023 - What Will Happen to The Market?

Last year brought many challenges with it. A cost of living crisis brought economic uncertainty into people’s homes and reduced disposable income for many. In times like these, it's fair to wonder about the property market, house prices, rents and mortgages – and ask whether it is still a good idea to buy property in the UK. Overall, while there are issues, the negative outlook may only be a short-term occurrence as indications are that better times are not far away.

UK house prices in 2023

The big news in the UK property market is that house price growth is expected to slow, and in some cases values will even fall in the first part of 2023. This has come as a shock to many after years of runaway increases in property values and caused a level of reluctance to buy in some cases.

While it is true that the Land Registry house price index shows that annual growth levels are still high, the monthly data from the likes of Rightmove, Halifax and Nationwide shows a small month-on-month fall in house prices. All indications are that this will continue over 2023 and possibly into 2024 in the worst performing areas of the UK.

This was an evolving situation over 2022. Expert forecasts originally showed that we could expect flat growth in 2023, but they have since been revised into a small fall as the economic situation changed over the course of the year. Knight Frank analysis now projects a decrease of 5% in the average value of a property in the UK.

Despite this, it is not fair to say that everything is doom and gloom. When proper context is applied, the picture is a lot more optimistic in the long term. Investing in property is not meant to be a short-term fix, and applying a longer perspective on the market shows that there is much to look forward to.

House prices are still at levels which are close to historic highs, and a small drop in 2023 doesn’t change that. The foundation of the market is a lack of available supply and overwhelming demand – this will not change anytime in the near future. Each year there is a deficit of tens or hundreds of thousands of new homes which leads to an overall shortfall which grows all the time.

This fact means that any turbulence in the UK housing market can only ever be short term. Analysis from Savills looking at the period from 2023 to 2027 shows what the effect of this will be in practice in the future when the current economic difficulties have receded and the market is back to normal.

The agency’s most up-to-date forecasts project that the average house price will return to its peak by 2026 and resume setting records in 2027. The average house price in the UK will reach £381,578 by the end of that year according to the report – a level which is more than £9,000 higher than the pre-pandemic peak. Average growth of 18% will be seen in 2024-2027 as the power of UK property reasserts itself in some style.

When the picture is looked at regionally, it is clear that some areas will exceed even this high level of growth and continue providing the capital growth which investors and homebuyers want. The North West (22.1%), Yorkshire (22.1%) and the West Midlands (19.7%) are all set to perform extremely well in the next four years.

For those looking to invest in cities like Manchester, Preston or Birmingham, 2023 looks to be a good time to do it. Strong house price growth is coming in those areas and buyers can make the most of it by planning ahead and purchasing in 2023.

UK rents in 2023

The rental market on the other hand not only remained in a state of growth over 2022, but it also continued expanding. Furthermore, all the signs and available data suggest that it will continue doing so in 2023.

More people than ever are staying in the rental market thanks to higher mortgage rates putting off first time buyers. This means that competition for homes is fiercer at a time when there are already not enough properties to go around - Rightmove has reported that there are approximately 26% fewer homes available to rent in the UK now than there were before the Covid-19 pandemic. From the point of view of the investor, this means that rents are rising very quickly.

Rightmove’s director of property science Tim Bannister said: “The story of the rental market continues to be one of high tenant demand but not enough available homes to meet that demand.

"Last year we saw exceptional numbers of tenants looking to move and this year we have seen no let-up in this trend. Whilst stock levels are beginning to improve, with June seeing the highest number of new rental listings coming to market so far this year, the wide gap that has been created between supply and demand over the last two years will take time to narrow.

To take Manchester as an example, the latest statistics from Alliance City Living show exactly how busy a booming rental market can become when there are ongoing supply issues.

Their latest analysis from Q2 2022 shows that average rents in Manchester have grown by almost 22% in the last year, with some parts of the city seeing rental growth in excess of 31% in the last 12 months.

To read their full analysis on the strength of Manchester’s rental market, please click here >>

When we look at the country as a whole it is clear that UK rents will build on a strong 2022 and keep going up in 2023 and beyond. The supply constraints and strong tenant demand will lead to an even busier market and therefore further growth. Savills predicts a 6.5% average rise in rents over 2023 and 18% by the end of 2027.

The rental sector has defied economic gravity and its fundamental strengths mean it is well positioned to continue flourishing in 2023 whether the economic uncertainty goes on or not. Investors can draw confidence from this as they consider whether to grow their UK property portfolios in 2023.

Should I invest in UK property in 2023?

With all the above in mind, is UK property investment a good idea in 2023? Property is a long-term prospect which rewards those willing to look ahead and plan for the future. Doing your research is the most important thing, and with all things considered it is clear that any potential problems in the UK market are only likely to be here in the short term.

For those savvy investors who can look further ahead, 2023 has all the hallmarks of being a good year to consider your next property investment. In particular, there are two strategies which are likely to offer the greatest chance of success over the next 12 months and on into the future.

the key may be to invest in new property with an eye on the future – preferably in a way that allows you to borrow down the line when the mortgage market has returned to normal and borrowing costs are once again reduced.

The first is to invest off-plan at a point before construction is complete. This is a tried and tested investment strategy which offers even more value now than it did in the past. By following this strategy, you can purchase a at its 2023 below-market value before house prices are predicted to rise. Furthermore, agreeing a purchase off-plan now means that you will pay on completion and avoid the worst of the high borrowing costs by waiting until the mortgage market returns to normal in the future. The balance of an off-plan purchase will be due in years to come when rates have returned to normal.

The second strategy to take advantage of the current and predicted mortgage rate situation is to buy in cash. By using this approach, you can avoid high mortgage rates now and save money immediately when compared to investors who borrow to fund their purchase.

After completion in the future, you will have the opportunity to benefit again by remortgaging the properties at more favourable rates and benefit even more.

Both of these methods offer significant advantages which make the best of the current and predicted property situation in 2023. While it is true that there are warning signs with regard to house prices and mortgage rates, the strength of the rental market and the opportunities available to investors make 2023 a good year to invest in UK property.

To learn more about investing and our available opportunities, get in touch with the team today by clicking here >>

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Mallam Grant
Ginny Wai 2
Conor Armstrong
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