The last three years, not just 2022, have been an emotional rollercoaster for the property market going from the highest of highs to the lowest of lows in what felt like a heartbeat. In 2023, the most critical factor to watch will be what happens in the broader economy. Will inflation continue to cause disruption? Will there be a recession? Or perhaps a “soft landing”?
Most experts of note are optimistic that, even though there will be an economic downturn, we may manage to avoid a deep recession. And though the full picture may not be rosy, it does mean a much less hectic housing market.
Sales Decline
The number of house sales falling through has remained almost identical to pre-pandemic levels in 2019, even though 2022 saw skyrocketing mortgage rates, rising monthly payments, and loss of buying power, bringing the market to a near standstill. The determining factors of how much sales will fall include what happens with mortgage rates, housing supply, and overall economic conditions. If inflation moves more slowly, homebuyers may feel things are stable enough to jump back into the market and sales may not slide as much. Other factors like the job market's strength, wage growth, and consumer confidence could also mitigate the sales slowdown.Mortgage Rates
Better.co.uk reports 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 is offered at 4.04%. The key drivers of this gloomy outlook are rising Bank of England 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 with the BOE interest rate likely rising to perhaps around 4.75% or 5.00%.Cost Of Living
Buyers appear to be waiting it out to see if interest rates drop as the recession takes hold. 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. 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. Rising inflation, lower employment, wage drops, higher expenses, and rising mortgage and financing rates collectively discourage would-be buyers.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 is typical during this season. 2022 ended with seller asking prices 5.6% higher than 12 months ago, compared to 6.3% annual growth in 2021. As the recession begins to bite in the first half, we could see the 5% to 10% predictions become more credible. Interest is there, but will the ability to purchase survive in 2023? What’s true about prices is that they have some way to fall to reach pre-pandemic levels. 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.
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