With 2022 coming to a close, the UK finds itself in a financial recession coupled with a cost-of-living crisis. According to Halifax’s House Price Index, since the UK entered the recession, the average house price fell by 0.4%. On top of this, in the last quarter of 2022, The Bank of England raised interest rates from 2.25% to 3.0%, triggering a low number of mortgage approvals and sellers accepting 3% below the asking prices on their homes. David Hannah, Group Chairman at Cornerstone Tax discusses what the outlook of the 2023 housing market is and whether it really is on track to crash.

In 2023, the high demand for affordable homes is set to continue and the effort to supply them is set to stagnate. According to The National Housing Federation, the UK needs to build 145,000 homes each year until 2031 in order to balance this issue. Also, with interest rates rising, many first-time buyers cannot afford to take out a mortgage as they struggle to keep up with the increasing cost of living. According to Rightmove, the number of first-time buyers in October 2022 was 21% lower in the last two weeks of the month, compared with October 2021, showing that the rise in mortgage interest rates is deterring these people from entering the property market. Crucially, Hannah highlights this is also set to deter housing developers from taking on loans in order to build affordable homes making affordability a major issue for domestic borrowing markets and depressing domestic demand. However, he also expects an easing of the government’s austerity budgetary restrictions possibly as early as summer 2023 with mortgage rates settling back down to 4 % in the middle of 2023.

Despite analysts’ forecasts for prices within Britain’s housing market to crash as much as 20%, Cornerstone expects to see low/mid-single digit growth between 5-8% in 2023. This growth will be led in large part by foreign demand due to a decline in the price of Sterling as the housing market became 10% cheaper- this means that even if domestic activity continues to fall, the market will remain buoyant.Serving as testament to this, in 2022 overseas investors now own around £90.7bn of property in England and Wales.

The UK housing market over 2022 has experienced huge rates of growth, most notably in the month of July as the average house price increased by 15.5%, up from 7.8% in the previous month according to the office of National Statistics. However, as the UK has entered further into the cost-of-living-crisis and impacts of the statement, prices have begun to decrease. According to Forbes house price growth in the year to October fell to 7.2% from the 9.5% increase that the market experienced in September 2022, whilst month on month prices have fallen by 0.9%.

David Hannah, Group Chairman at Cornerstone Tax, discusses: 

“We have faced a massive set of instabilities. We’ve had two years of the pandemic, necessary pandemic spending, we’ve had the war in Ukraine and that has increased inflation which has led to a massive increase in interest rates. Recent government policy in the UK has led to a devaluation in sterling and at least one if not two regime changes in the conservative party, and all of these factors have added to a sense of uncertainty of what’s going to happen in 2023.

“In early 2023 we will see slow demand. Only those people that are forced to sell will see a small fall in prices, however, over the whole of 2023, I expect to see low to mid to single-digit growth over the UK property market- between 5-8%. Despite the negative headlines we have been seeing, there is an underlying pressure on the market and that is leading to upward pressure on prices.

“We now have a growing number of people that want to move to the UK. The first is the overseas investor who regards UK property as a safe haven for their money because the country they principally live in is not economically or politically safe. The second are those who want to become second homeowners. The third and final group is those who want to leave their country of birth and are in need of a home. All of these factors over the course of the next 12 months, I believe, are what will support the UK market and leave it with a modest and steady rate of growth.

“There will be NO crash and NO 10-20% fall in property prices that we saw in the noughties. The UK property market has tended to be more stable than any other global market in property.”

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