UK Housing Market Updates - January 2023

Sales Demand

UK property market is slowing down, and it is not just a regular seasonal change, but very likely, a long-term outlook predicted by many industry professionals at the end of 2022.

During the pandemic, UK property prices were historically high, with an annual rise of 10%. Nationwide Building Society found that UK house prices increased by more than 60% over the last ten years. The main long-term factors influencing this price trajectory had been the shortage of housing stock at times of increased demand and affordable finance or low-interest rates on borrowed money.

The slowdown outlook for 2023 is based on economic factors, two of which are highlighter in almost every commentary: the interest rate and the cost of living.

Since December 2021 the Bank of England base interest rate has changed nine times from 0.1% to 3.5% as part of the monetary policy strategy linked to the Government’s inflation rate target for 2023. The rate is expected to peak at 4.0% in February 2023, with the first fall anticipated in early 2024 (Oxford Economics).

With the increased cost of living in the UK and possibly another interest rate rise in 2023, property buyers are entering the market with caution. From identifying the right property to buy, to sourcing an affordable mortgage and getting it approved by the bank, the selling process time frame has extended. Completing a purchase is already taking longer. According to Savills, mortgage approvals dropped -28% in November 2022 compared to the November 2018-19 average. One more indication that the number of sales transactions linked to mortgages in 2023 is expected to fall.

Sales Supply

The broader economic environment and the UK economic performance will impact the new housing supply in 2023. Both will shape the construction industry, which provides new homes. The new housing stock delivery depends on the availability, supply and cost of building materials and skilled labour. There are already signs of shortage and rising costs for both.

At the same time, homebuilders are under pressure to construct better, energy-efficient homes with advanced insulation and reduced heating, hot water and lighting costs. As such, the price of delivering new homes is therefore expected to rise significantly. This will impact the number of both affordable and investment homes, which will most likely be restricted. Furthermore, a recent report, ‘Building Homes in a Changing Business Environment’, by the Home Builders Federation, identifies 12 new taxes, levies, and regulations that, whilst mostly meritorious, cumulatively pose a serious challenge to the homebuilding industry’s ability to function and deliver new homes.

London City Hall is facing a big challenge in 2023 having on its agenda to start building 25,000 new affordable homes by March 2023—a target that is not likely to be met. Moreover, the Government’s department for Levelling Up, Housing and Communities has downgraded its forecast of delivering affordable housing in its 2016-2021 programme: instead of 180,000, it expects to complete 157,000 homes.

Based on the latest report from the Office for National Statistics (ONS), between 1 July and 30 September 2022, the number of UK dwellings where building work has started on site was down by 19% compared to the same quarter in 2021. The number of completed dwellings during the same period was 42,950, or a 4% decrease. In the year to 30 September 2022, London recorded 20% increase in starts, but, the number of completions, for the same period, decreased 32%.

Rental Market

After unprecedented growth in 2022, the private rental prices paid by tenants in the UK are likely to rise further.

According to Dataloft, the rental market will outperform the sales market over the next 5 years. The strongest rates of growth are expected in 2023 and 2024’. 

UK Rental prices rose by 4.2% in the 12 months to December 2022, up from 4.0% in the 12 months to November 2022, states ONS in the latest Index of Private Housing Rental Prices.. Whereas London’s rental prices for the same period rose by 4%.

Affordability is already extremely stretched in certain cities, especially in London, and that is the factor that could slow the rent rise.

Centre for London’s report for January 2023 highlights the new data from the 2021 census showing that London is more reliant on private rented housing than anywhere else in England & Wales. ‘London has a lower proportion of houseowners than any other region in England and depends on the private rented sector which now counts for 30% of London households, more than anywhere else in England and Wales.’

Find out if the value of your UK property has changed in the last 12 months. Click HERE