Will property prices in the UK drop? Will the rising interest rates continue to be on the rise? Will the cost of living crisis affect the purchasing of property? Will there be an increase in the shortage of properties in the market? These are among the questions that almost everyone concerned with the property market in the U.K. seems to be asking.
What did the crystal ball foretell?
At the onset of 2023, there were valid concerns about the possibility of a mild recession, mainly due to the presence of high inflation and increasing interest rates, which were dampening economic growth. A few other forecasts that were important to decide the trajectory of U.K.’s property market included the forecast of Lloyds Bank, which initially predicted an 8% decrease in house prices for the year, but in February 2023, they revised the estimate to just under a 7% decline; Zoopla’s house price forecast that anticipated a drop of up to 5% in 2023, and as of June 2023, they declared their forecast remains on track; property consultancy company JLL had predicted a 6% drop in U.K. house prices and housing expert and buying agent Henry Pryor had a more pessimistic view where he expected house prices to gradually decrease throughout the year and end up falling by approximately 10% at the end of 2023. Some of these predictions were revised over time and some are yet to be labelled as true or false.
Forecasts that were made about U.K’s property market at the beginning of 2023
| Institution | Prediction |
| Lloyds Bank | Initially predicted an 8% decrease in house prices.In February 2023, they revised the estimate to just under a 7% decline |
| Zoopla | anticipated a drop of up to 5% in 2023, and as of June 2023, they declared their forecast remains on track |
| Property consultancy company JLL | predicted a 6% drop in U.K. house prices |
| Housing expert and buying agent Henry Pryor | Fostered a more pessimistic view where he expected house prices to gradually decrease throughout the year and end up falling by approximately 10% at the end of 2023 |
An article written for CBRE (an online website) predicted that inflation, which had reached its highest point, would gradually decrease over the course of 2023. They also were of the opinion that the decline would have been influenced in part by a continuous increase in interest rates, where the rates were expected to reach their highest point at around 4.5%. However, the UK mid-year market outlook by the CBRE gauges the situation that the country is in now and draws the inference that while inflation has remained stubbornly high, there has been a drop from its October 2022 peak. Even then, the rise in interest rates, particularly how it affects mortgage costs, poses a risk to the economy and raises the possibility of a recession. Nevertheless, the presence of 2-5 year fixed rate mortgages means that the full impact will be gradually introduced over time, and some households may even experience advantages from these higher interest rates.
Considering this, it is believed that the UK can narrowly evade a recession in 2023. Furthermore, a modest recovery is anticipated in 2024, aided by declining inflation, which will help restore the spending power of consumers. In the same vein, the staggered impact of higher interest rates and other economic factors should contribute to a relatively stable economic outlook. Although the UK economy will manage to somehow evade a full-blown recession, it is still grappling with persistently high inflation and interest rates. As expected, these conditions have made things complicated for the real estate industry, as higher borrowing costs have led to reduced levels of investment. Given this convoluted economic backdrop, it’s not surprising that different sectors within the real estate industry have faced their own challenges. Some sectors were able to perform better than others, reflecting the varying degrees of resilience and adaptability in the face of these economic pressures. While this is a general oversight, there are more specific concerns and deep-rooted issues that govern the UK’s property market.
What do sentiments towards the housing market look like?
According to an article in The Guardian titled “UK housing slowdown hits market confidences as asking prices fall”, penned by Zoe Wood, a recent poll supported by a separate survey indicating a slight decrease in property asking prices, has revealed that concerns among homeowners about the possibility of property prices declining are having an impact on the overall national mood.
Consumer confidence, as measured by the YouGov/Centre for Economics and Business Research (CEBR) index, decreased by 1.7 points in June, but it still remains in positive territory at 101.6. However, the most significant factor affecting this index was the pessimism of homeowners. Confidence in property values dropped by 5.8 points for the month and 10.3 points for the coming 12 months.
This decline in sentiment can be attributed to a series of negative economic news, according to Kay Neufeld, the CEBR’s head of forecasting and thought leadership. Homebuyers and individuals looking to refinance their mortgages are particularly affected, given that interest rates have risen beyond the levels seen in the wake of last year’s mini-budget. As a result, it’s not surprising that the indicators related to property values have seen the largest decline in confidence in June.
However, according to the property sentiment index released by ‘On The Market’, the housing market was viewed to be impressively resilient in the month of July where 76% of active buyers in the U.K. were convinced that they would buy a property within the 3 months that followed and 63% of sellers in the U.K. were confident that they would sell their property before the end of October.
Despite the numerous challenges in the housing market, it is quite remarkable that over three-quarters of prospective buyers still have confidence that they will be able to buy a property in the next quarter. This optimistic sentiment is consistent throughout the country, as buyer confidence has improved in all regions except for the West Midlands, where there was a slight decrease in sentiment. In comparison, the seller sentiment does not live up to that of the buyers’, where seller sentiment on average fell by 1% in July when compared to June.
Will the housing market crash?
As Home Owners Alliance CEO Paula Higgins puts it across in an article titled “What will happen to the housing market in 2023” it is difficult to make a clear-cut prediction on a situation as such. As she aptly points out, “We must remember it didn’t happen with Brexit, it didn’t happen with the pandemic and we still have a fundamental shortage of housing. Considering the difficult factors homeowners face, from increased mortgage costs and the cost of living crisis, it seems sensible to assume house prices will drop further this year. But after so many years of house price inflation, we think this is more likely to be a correction than a crash.”
Therefore, saying that the housing market in the UK will crash for sure will be a prediction that jumps the gun. A few expectations for the UK housing market in the coming years are: house prices are anticipated to drop by 5-10% in 2023, the market is expected to remain subdued in 2024 and there may be signs of a housing market recovery which will begin somewhere in the year 2025.
All in all, it’s essential to acknowledge the complexity of the UK housing market. It’s challenging to accurately predict its future due to all the various factors at play. Market dynamics, economic conditions, and government policies can all influence the trajectory of house prices. The UK housing market is facing a period of uncertainty, therefore, while these predictions offer some insight, they should be taken with a pinch of salt as the actual outcomes may differ.
(Sandunlekha Ekanayake)