Property market predictions for 2023

2022 has been another crazy year for the UK property market, following 2021 when the pandemic property market boom, fuelled by the stamp duty holiday, sent buyers into overdrive and pushed house prices to record highs.

Despite the first increase to interest rates coming in December 2021, the market continued to see robust and consistent level of activity throughout much of 2022, with the latest sold price data from the Land Registry showing that house prices currently remain 9.5% higher than they were last year.

However, with a string of interest rate increases driving up the cost of borrowing, the latest house price index from Halifax has revealed that house prices fell by -2.3% between November and December, the first signs that the market is starting to cool.

The latest data on buyer demand shows that the level of homes listed for sale that have been snapped up by buyers is also currently sitting -1% below this time last year, with the total number of properties sold in 2022 estimated to drop by 32% when compared to 2021.

At the same time, a continued reliance on the rental sector to put a roof over the heads of many has seen the average cost of renting across the UK increase by 11.1% in the last year, now averaging £1,175 per month.

But what does it mean for the year ahead? Property industry experts from across the property sector have shared their thoughts on what’s to come in 2023.

Residential Sales and Lettings

Marc von Grundherr, Director of London lettings and estate agent, Benham and Reeves, commented:

“A further increase to interest rates will certainly spur a continued cooling in current property values but it’s extremely unlikely we will see the deep freeze that many may lead us to believe. At most, we can expect a five per cent drop during the first six months of the year, at which point stability will return and house prices will start to level out.

As for the rental market, we’ve seen values climb consistently higher over the last year and with a shortage of stock continuing to be a burning issue, we can expect the cost of renting to climb by a further 10% in 2023.”

James Forrester, Managing Director of Birmingham estate and lettings Agent, Barrows and Forrester, commented:

“While the focus is often on house prices, it’s the transactions these prices are agreed on that fuel the furnace of the UK property market.
In 2021 we saw huge peaks of up to 165,000 homes sold per month and while this has subsided in 2022, we’ve seen a far more settled, consistent level of homes sold on a monthly basis – between 60,000 to 75,000 per month.

We expect this consistency to remain in 2023, as despite the turbulence caused by increasing interest rates, there remains an excess level of buyers for the for sale stock available on the market.

Yes, a return to normality is currently unfolding with respect to house prices, but while buyers and sellers continue to transact, it’s probably a little premature to predict the final days of the UK property market.

We also expect rental values to remain robust, climbing by between five to eight per cent. 2022 brought further proof that the government remains intent on attacking the nation’s landlords, with changes to capital gains tax thresholds. I expect that the one time they show any sort of backbone when it comes to delivering on housing policy, it will be with regard to Section 21 notices, further reducing the power of landlords when it comes to safeguarding their own investments.

As a result, we expect many more will reconsider their future in the sector, further reducing supply to the detriment of the nation’s tenants.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:

“While there’s no need to buckle up for a house price crash, we can confidently expect property values to decline quite significantly over the coming year, with a double digit decline unlikely, but certainly not out of the question.

We’ve already started to see a weakening of the market due to the combined pressures of high inflation, lower wage growth, and rising interest rates putting massive pressure on household budgets.

As a result, those entering the market to sell will still be able to find a buyer due to the shortage of stock available. But while this continued imbalance between supply and demand will allow them to sell, they will no longer hold the power where negotiations are concerned and will find the hefty premiums secured during the pandemic market boom are no longer on the table.”

COO of GetAgent.co.uk, Mal McCallion commented:

“Going into 2023, the sellers in the best position are downsizers. As the number of quality mid-range stock comes to market – due to lots of landlords selling up – this in turn will free up a lot of quality stock at the top end of the market that has been locked-up for decades.

It means that there are going to be some incredibly rare bargains out there for those willing and able to move to their perfect home. 2023 is going to be a year of rationalisation – rational decisions being made in a rational market by rational participants who understand the market and their circumstances within it.”

Mortgages and Finance

Jonathan Samuels, CEO of specialist property lending experts, Octane Capital, commented:

“We’re unlikely to see a general election in 2023 and this should bring continued political and economic stability to the UK property market. Bond markets like a steady hand and both Sunak and Hunt are believed to provide one, as evidenced by the most recent budget that barely registered a murmur.

As a result, we’ve already seen Gilts and Swap rates stabilise and we believe this will remain the case throughout next year. While the knock on effect to mortgage rates has been gradual, momentum is building for a steady reduction which should benefit buyers in 2023.

The one negative for 2023 is the potential for property prices to fall due to the raised interest rate environment that started mid-late 2022. That said this is likely to be spread unevenly through the country.

Areas where yields are higher, typically in northern areas of the nation, and property types with higher yields, such as HMOs, MUFBs, and ex-local authority, will be best placed to meet ICR tests and therefore resist downward pricing pressure.

At the opposite end of the scale, those areas that have wealthy cash buyers or low loan to value borrowers will also be better insulated from the impact of higher borrowing costs.”