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The UK Housing Market

December 28, 2022

UK Property Market Update

How quickly the outlook on the UK property market has changed. We went from boomtime reports earlier this year to doomsdays scenarios.

Those lofty price heights dashed by stronger headwinds should push the housing market into a sizable downturn, but perhaps not as severe as some might predict. Support for beleaguered borrowers and the end of interest rate rises could help keep the market from collapse.

Major Property Market Forecasts for home prices:

  • Mortgage lender Halifax forecasts a decrease in house prices in 2023 of 8%
  • Savills UK believes house prices will drop 10%
  • Jones Lang LaSalle is forecasting a 6% drop in house prices next year
  • Nationwide believes they will fall 5% in 2023

How High could Mortgage Rates Rise?

Better.co.uk reports the 4.69% for a two-year fixed mortgage rate and 4.49% for a 5 year loan, while the best 10-year fixed rate deal are offered at 4.04%. These are about 2% lower than in the USA.

What’s driving the dour outlook is rising BofE rates and the risk of mortgage default by about 80,000 borrowers who are facing much higher rates and more inflation expense in 2023. Yet most households are in good financial shape according to sources, therefore it is very difficult to forecast a UK housing market crash. Instead it looks more like a slide.

The Independent reports that millions of Britons using fixed-rate mortgages will see mortgage payments rise £3,000 a year (Bank of England). Around 4 million homeowners will see their monthly payments jump over the next year as the risk of Britons defaulting on debt has risen, the Bank said. Those with fixed-rate loans due to expire by the end of 2023 face average repayment hikes of around £250/month. B of E said 6 million homeowners will see mortgage payment hikes by the end of 2025. About 78% of outstanding UK mortgages have fixed rates.

BOE interest rate will likely rise to perhaps around 4.75% or 5%.

Inflation, Rising energy costs, and Rising Wages too

Buyers appear to be waiting it out to see if interest rates drop as the recession takes hold.

The consensus on energy costs is for rising rates. Oil is expected to rise again even with a recession taking hold due to a lack of supply, and Europe in general will suffer. The rising price of oil and petrol will put UK businesses and homeowners in a financial squeeze. This is part of the headwinds for the UK housing market.

BCC Head of Research, David Bharier, said the current inflation rate of 10.7% indicates the UK has passed the peak, yet high prices will likely persist in 2023.

When experts speak of inflation, they usually refer to a moderation of growth, not a reversal to affordable levels. Zero growth still leaves UK homeowners in a tough situation with crippling expenses.

Bharier added that due to razor-thin profit margins, very few SMEs will increase business investment as they experience higher energy bills, input costs, interest rates and taxation.

Rising inflation, lower employment, wage drops, higher expenses and rising mortgage and financing rates collectively discourages venturesome prospective buyers.

 

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Current UK Home Prices

The last 4 months, UK homes prices have declined, not that the drop will matter a lot to buyers. Those few enabled to purchase may enjoy a slightly broader selection of homes with a slight discount.

Yet with all the doom and gloom talk, sellers are not eager to give up their property at bargain prices. This same situation exists in Germany, Australia, Canada, and the USA. The global resentment of rising immigration and unwillingness to invest in homebuilding and pushing construction costs skyward is resulting in demand being much higher than supply.

UK home prices chart 2019, 2020, 2021, 2022.

UK home prices chart 2019, 2020, 2021, 2022. Screenshot courtesy of Nationwide.

Average UK house price increased by almost £20,000, from £255,556 to £273,751 during January to August 2022. While that seems like quite a jump it actually pales in comparison to the price jumps in other countries.

The market is falling but it’s not coming down from the heights that some global markets climbed to.

Rightmove Property Price Report

Rightmove reported the average price of a UK residential property fell 2.1% (-£7,862) in December. It is a little larger dip in price than typical during this season. They believe sellers are trying harder to tempt buyers into buying, showing perhaps a negative tone to market sentiment.

They report 2022 will end with seller asking prices 5.6% higher than 12 months ago, compared to 6.3% annual growth in 2021. This might tell us that real negativity may not have even hit the markets yet. As the recession begins to bite in the first half, we could see the 5% to 10% predictions become more credible.

Most strangely, is the stat that on online views of homes for sale on Rightmove is up 11% compared to this time last year. Buyers still appear to be interested in buying regardless of the conditions. Tim Bannister, Rightmove’s Director of Property Science said that during the past two weeks, the number of people enquiring to estate agents is up 4% on the same period in 2019.

Interest is there, but will the ability to purchase survive in 2023?

Rightmoves adds: “We expect that lower volume of new buyers since the mini-budget will translate to lower transaction numbers in Q1 and Q2 next year, as the market readjusts to a higher interest rate environment.”

What’s true about prices is that they have some way to fall to reach pre-pandemic levels.

Rent homes prices, changes year to year in UK.

Rent homes prices, changes year to year in UK. Screenshot courtesy of Rightmove.co.uk.

What’s Causing UK Home Price Rises?

The cause of the price increases?  Let’s list them all:

  1. strong buyer demand from immigration, equity-rich buyers
  2. inflation, new construction costs rising
  3. inventory growing slightly
  4. migration out of London to larger homes in suburbs and northern England and Scotland
  5. low mortgage rates
  6. pent up demand from the pandemic shutdown
  7. speculation as economy improves and foreign buyers return

In our previous update on the UK real market forecast, we predicted house prices would rise and demand for homes would pick up. It’s actually done much better. And UK rent prices are on the rise too.

Savill’s 5 Year Home Price Forecast – 2022 to 2026

As you can see in this 5-year forecast chart of the 2022 to 2026 period,  Savills UK predicts moderating in property prices.

UK property price 5 year forecast. Screenshot courtesy of Savills.

 

Economic factors for UK housing markets. Screenshot courtesy of Savills.co.uk.

 

UK property price 5 year forecast. Screenshot courtesy of Savills.

However, Savill’s notes that UK average incomes will not keep pace with home price rises.

Trading Economics suggests the property market will increasingly heat up as 2023 progresses.

Trading Economics UK Nationwide property price forecast for 2023. Screenshot courtesy of tradingeconomics.com

Hometrack and Zoopla data shows buyer demand remains strong.

UK Home Buyer demand.

Screenshot courtesy of Hometrack.co.uk. UK Home Buyer demand.

City by City, UK Property Price Chart

City by City, UK Property Prices.

City by City, UK Property Price Chart. Screenshot courtesy of Homelet UK.

UK Rent Prices Still Rising

Andy Halstead, HomeLet and Let Alliance CEO said that last January 2022, the UK’s average rent was £1,064 and by November 2022, it had risen to £1,175, a 10% increase in 10 months.

He believes 2023 will be a challenging year for the private rental sector. Their survey of landlords showed 40% of landlords named the cost-of-living as their biggest concern over the next 12 months.  Surveyed tenants showed they are concerned about this as well.

It underscores the importance of property management software technology in streamlining management to reduce costs for landlords and helping to keep rent prices down. A lower rent price may aid in better profitability for UK landlords.

Uk Rent prices by region. Homelet Rental Index.

Uk Rent prices by region. Homelet Rental Index. Screenshot courtesy of Homelet.co.uk.

UK house rental prices. Screenshot courtesy of ons.gov.uk.

UK Rent Prices (up to date from homelet.co.uk)

Homelet’s November rent report shows that the average rental price for a new tenancy in the UK was £1175 per month. Their rent report further shows:

  • the average rent in the UK is up 11.1% to £1,175 compared to one year ago, and up 0.3% from October
  • all UK regions continue to see annual price growth (good for property investors)
  • rent prices in metro London have gone up 1.1% vs October to £2,011 per month
  • Excluding London, average UK rent prices rose 9.9% vs 12 months ago, are up 0.1% vs October, to £977 PCM now
  • The North West saw the highest monthly growth (1.2%), to a new average rental price of £871 PCM
  • The North East’s average price for November rose 0.6% higher than in October, up to £627 now

UK Renter Statistics

The English Housing Survey, published by the Ministry of Housing, Communities and Local Government (MHCLG) revealed 4.5 million households live in the private rented sector in England and another (4.0 million) live in the social rented sector. They comprise more than 1/3rd of the UK population. 84% state they are satisfied with their current accommodation. They believe tenants move because they must move.

According to the English Housing Survey, private renters spent a third (33%) of their household income on their rent. That compares 28% for social renters, and 17% for mortgagors. Rents percentage of household income was 6% higher for private renters in London (42%) than for the rest of England (30%).

Most private renters (71%) said they found it easy or very easy to pay their rent. They are paying about a third of their income on rent (according to the report).

Tenants Aren’t on the Move

The report indicated that the main reasons for moving in the last 3 years were job-related (18%) and moving to a better neighborhood (16%) and moving for a larger residence (13%). 12% moved due to the landlord’s request.

63% of private renting tenants have no savings, and a third report having a small amount of savings. Given housing prices, it is a reach to say British renters are ready to buy a home. Although 58% says they would like to buy. 77% of younger Brits believe they will buy at some point.

The rental market in the UK will remain squeezed, putting limits on rent price hikes and on rental property owner profits.  UK landlords and property management firms should be comparing, reviewing and selecting a modern property management solution.

 

See also: Property Management Software | Compare Property Management Software | Property Market UK | London | German Rental Housing Market | Berlin Property Market | Buy Property in BerlinAustralia Housing Market | Sydney Australia Property Market  | Property Management Accounting | Property Management Trends California Housing Market | Best Cities for Rental Property |

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