2023 Property Forecast: Current Market, House Prices, City Centres to Outperform..

Property News of The Month: November

November has seen a number of new developments in the world of property. Despite concerns over a housing crash and mortgage interest rates, investors remain positive, as the rental market is growing at its fastest rate on record, especially in city centres.

Is the housing market expected to crash, correct or neither?

Following a sharp increase in borrowing costs and an expected rise in mortgage rates, combined with the rising cost of living, many forecasters are predicting a fall in UK housing prices. However, the reality is, despite the warnings the market is more than likely going to soften rather than crash. We have to bear in mind that we have seen up to 20% growth in some areas of the UK over the last 2 years. So a 10% correction would take us back only 12 months in the whole scheme of things.

However, despite high inflation rates and low GDP, unemployment is at a record low compared to previous decades. According to JLL, “Even with unemployment predicted to rise, we won’t see that of the levels in the 90’s”.

Also, unlike the late 2000’s when the Global Financial Crisis came about, lending practices have been improved significantly, and the housing market now has much stronger foundations, unlike those we saw previously. The Sub-Prime market that underpinned a great deal of the market is now no more.

This means that in 2023, we could see interest and mortgage rates returning to the levels of pre-2008, however, we expect these to fall back as inflationary pressures ease.

Interest and Mortgage Rates

FW Recommends: Buy a property that is off-plan and completed in 18+ months’ time. This will give the market time to settle down and the mortgage market to come back in our favour. Even if the rates come back by 1-2% this can be a great saving on the overall cost of the property.

No Need to Stress About Mortgages

With mortgage rates rising, there has been some talk about whether people will need to sell their homes in order to make sure they can keep up with the cost of living. However, this should not be the case.

Due to low unemployment and the highest average incomes, the UK’s mortgaged households are far more financially stable than in either of the previous two difficult financial periods. JLL states in the latest report that, “For the vast majority of people they should therefore be able to avoid the need to sell their home in order to keep up with the rising cost of living.”

FW Recommends: We are not in 2008 territory where we had the perfect storm. Back in 2008, we had increasing unemployment, higher mortgage rates and a huge lack of liquidity from the banks. This caused the market to fall by around 15% putting a number of people into negative equity. This time around, lenders have been a lot stricter giving us full confidence that we are not going to see the issues we saw back in 2008-2010.

Low Risk of Home Possessions

It’s good news in terms of repossession, as banks are not currently pursuing this option as much as they have historically. In the UK there are around 4,000 repossessions per year, which is only 0.04% of all total mortgaged properties. Compared to the early 90’s, we were seeing around 100,000 homes repossessed per year.

There are other options that must first be explored before repossession occurs. These include tracker rates or interest-only periods. It is highly likely that banks will exhaust all these options before pursuing repossession. This is good news for mortgage holders.

FW Recommends: As we are not expecting a large downturn in the prices of property we are therefore not expecting a great deal of negative equity. In turn, we don’t expect to see the number of repossessions that we saw back in 2008-2010.

Will House Prices Fall?

There still appears to still be lots of discussions of house prices falling in 2023. But by how much? The OBR is forecasting that UK house prices will fall in value by 9% in 2023, whilst JLL are coming in at 6%. This will not be blanketed across the UK, as always some regions will experience greater falls. 

However, in UK city centres with low supply, where there is a greater concentration of equity-rich buyers, price growth is expected.

FW Recommends:  If you look back at our videos and webinars we constantly said that the need for space is a fad. A fashion that will come and go due to COVID and we were proved right. As more and more clients are coming back into the city centres we are seeing houses drop their asking prices on the outskirts but increase them in the city centres. Again, when buying property it always pays to look at the long-term goals rather than the short-term trends.

Strong Rental Markets

The rental market in the UK continues to grow, as more people are struggling to find accommodation. This is because the UK currently lacks enough quality rental housing.

This will be great news for those investing in buy-to-rent properties, as rental demand is predicted to be strong at the beginning of this next 5-year period. 

In fact, October 2022 recorded the largest increase in rental prices in history.

FW Recommends: When there is negative news surrounding the property market many people sit on their hands. This is more so for first time buyers. So what is the outcome? Well, they simply rent for longer putting a strain on the rental sector thus increasing the demand and therefore the rents landlords can achieve. This then means more landlords are attracted to the market due to higher yields for their properties.

City Centres to Outperform

Things are on the up for the UK’s biggest cities as we are expecting to see growth in the centre of many cities across the county.

You only have to look at the latest Zoopla reports knowing that it is constantly the same cities in the top 10 of property growth. Manchester, Liverpool, Leeds, Nottingham, Sheffield and Birmingham constantly feature and are expected to be the strongest housing markets in terms of price growth over the next 5 years.. Manchester is the fastest-growing economy in the UK and JLL expects to see growth as young people decide to move there. As a result, there are many new developments in the area. This is great for investors because new builds are much more energy efficient, which will be popular with prospective renters looking to reduce their energy bills.

FW Recommends: Buy new! Why? Simple. The rental market is changing and as more and more legislation is coming into play we are seeing that properties need to meet certain criteria. EPC ratings, sizes, prices and quality are all going to be important as we head through the decade. We are best to plan ahead, buy city centre and buy new.

For more information, or to discuss your property requirements, contact us now. One of our brokers will be happy to offer no-obligation advice and assistance at a time convenient to you.

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