The past few years have seen runaway demand, runaway prices, and, following hot on their heels, runaway bank and interest rates. And now, the outlook for 2023 looks quite different indeed. But, for property investors, the question is: just how different?
At GetGround, we’ve looked into our crystal ball to bring you five predictions for the UK property market in 2023 – a year that promises falling prices, and new opportunities.
Prices will soften – but no crash
Property prices dropped for the fourth consecutive month in December 2022 (down 1.5%), and this looks set to continue into 2023. In fact, JLL has predicted a 6% slide, as borrowing costs rise and demand falls.
This compares favourably to some slightly more aggressive projections, that have projected falling prices to the tune of 20 or 30%. But we don’t foresee a crash, for two main reasons:
Firmer market foundations
Previous crashes occurred during times of looser lending practices. Ever since the new legislation stemming from the 2008 financial crisis, the UK’s property market has sat on much firmer foundations. That means far less distress in the market – JLL states that “62% of the UK’s 8.4m mortgaged owner occupier households have at least 25% equity in their house”.
This makes the prospect of a total crash much less likely.
Low supply
Property prices, like anything, are a product of supply and demand. And, even though demand will fall slightly, there’s still a massive shortfall in UK housing stock which will stop values plummeting.
Let’s look at the stats: it’s predicted that the UK needs to build 300,000 houses each year to keep up with demand. But, even before the pandemic in 2019, there were only 214,000 new dwellings built. This dropped to just 37,000 in 2021 – only deepening the divide between supply and demand. This mismatch will help stave off a crash in property prices in 2023.
Opportunities exist, but who will find them?
In previous years, runaway capital appreciation has made most investments look like winners – but that’s about to change. With prices set to fall in 2023, savvy investors will need to work harder to find great opportunities.
But that’s no bad thing – UK property has always served as a great medium-long-term investment, and we’ll see a return to that approach in 2023. More due diligence, more caution, and more education will be the name of the game this year.
This isn’t to say that there aren’t opportunities out there. There are! And, as demand falls and there are fewer prospective buyers for each property, we could even see the return to what might tentatively be called a buyer’s market. That means more opportunities to negotiate, find value, and maximise capital appreciation for years to come.
Rental prices & yields will keep rising
In the face of tightening affordability checks, many would-be buyers will keep renting – especially first time buyers.
That will keep rental demand high. And, when you pair this with the already dwindling supply that we’ve already touched on, you can expect to see continued rises in both rental prices and yields this year.
In fact, Hamptons data suggests rental price increases of 5% in 2023 and 4% in 2024 – just shy of the 6% average we saw in 2022.
A ‘new normal’ for mortgage rates
Ask a 30 year-old about mortgage rates right now, and they’ll rightly say they’re the highest they’ve seen in their adult lives. But you might get a different answer from their parents.
Between 2000 and 2008, the UK bank rate hovered around 5% – only ever dropping as low as 3.5% (July 2003). Before that, they hit 7.5% (June 1998), and in the early 90’s they approached a whopping 14% (Oct 1990).
All this is to say that the rock-bottom rates we’ve grown used to since 2008 were the exception, never the rule. 2023 looks set to be the year we acclimatise to slightly higher rates again – with most projections suggesting a peak of 4.5-4.75%.
A calmer market – finally
We’ve mentioned the likely end of spiralling capital appreciation as we’ve known it in the past few years. But what about the knock-on effect that’ll have for the UK property market?
We foresee that, for the first time in a while, a bit of calm will return to the market. No boom, and definitely no bust – but more clarity, more calm, and a chance for reasonable, sustainable price growth in the long-term.
In this new, measured environment, what will set investors apart are informed decisions. With prices no longer skyrocketing, 2023 will be the year of investing wisely for long-term gains.
Want a simpler way to invest in UK property? Whether you're looking to find a property or set up your limited company, we're here to help. Explore your options with a free, no obligation call with a GetGround property consultant today. To get started, just book here.
This is for your information only – you shouldn't view this as legal advice, tax advice, investment advice, or any advice at all. While we've tried to make sure this information is accurate and up to date, things can change, so it shouldn't be viewed as totally comprehensive. GetGround always recommends you seek out independent advice before making any investment decisions.
