2023 Property Market Wrap-Up: A Year in Review

Category: Property Investment

This year, the property market certainly had its ups and downs. From fluctuating house price inflation to the sudden base rate increase, the 2023 property market has been readjusting to offset affordability pressures for both buyers and renters.

The 2023 property market is cooling down in hopes of returning hopeful buyers into the New Year. But what brought it to this rocky conclusion? We are looking at the whole 2023 property market in review.

Author: Becky Mundie

Digital Marketing Executive

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A Hopeful Start

Q1 2023

The 2023 property market started strong while still reacting to the mini-budget impact in September 2022. Forecasts for the year were fruitful, with predictions for the best buy-to-let areas and interest rates to decrease below 4%.

The Mortgage Guarantee Scheme was extended from December 2022 for another year to help buyers get onto the property ladder, after helping 24,000 to date.
Property prices rose by 0.9% in January to support the supply-demand imbalance.
Rental prices increased by an average of £115 per month YoY to counterbalance growing house prices.

Increases Begin

Q2 2023

In April, first-time buyers (FTBs) found the average asking price was hitting an all-time high of £225,000. This meant that saving for a 10% deposit of £22,500 proved most difficult. Despite this, FTBs remained one of the largest groups to buy in May, seeing a 6% increase compared to pre-pandemic levels.

A Help to Buy 2.0 plan began to evolve, as well as an increase in 100% mortgages, to aid the affordability pressures.
Prices and buyer demand continued to rise, encouraging the UK housing market to see the biggest increase of the year.
May saw house price growth hit +1.8% against its 1.0% historic average.
The base rate already began to contradict forecasts, rising from 4.25% in March to 4.5% in May.

The Rise of Interest Rates

Q3 2023

Here came the turn the 2023 property market was not expecting. To combat inflation and bring it down to 2% from 8.7%, the BOE raised the base rate to above 5%. This sudden rather than steady increase was a tactic to make it more expensive to borrow money, hoping that people would opt to save money while price increases cooled.

However, research proved that the average mortgage rate between 1995 and 2022 was 5.62%. Following the low mortgage rates of the pandemic which we grew accustomed to, this meant that it was more the sudden rise back to average rates than the rate itself that shook the market.

2-year and 5-year fixed deals became 5-6% compared to the 2% rates at the start of 2022.
The increased rates marked the 13^th increase since December 2021 and the highest base rate in 15 years.
In response to the higher mortgage rates, house prices began to drop, dropping to +0.6% in July and +0.1% in August (the lowest it has been in 12 years), compared to +9.6% in June 2022.
The house price growth rate began to further widen the North-South Divide, with the South seeing reductions in price but remaining the most expensive region for buying.
With mortgage repayments reaching an average of £216 more per month (a 23% increase), many buyers were questioning whether to buy with the current mortgage rates.
To avoid fixed rates as high as 6.47%, more properties were being bought upfront with cash.

Rebalancing Commences

Q4 2023

House prices began to reduce across the country. According to Rightmove, asking prices decreased by an average of 1.9% between November and December, which is a steeper fall than usual. As for sales, they average 20 weeks rather than 16 weeks from listing to completion.

However, with the BOE holding the base rate at 5.25% since November, it is safe to say that mortgage rates have peaked. Could this end to the 2023 property market be a hopeful one?

A 6.5% increase in rental prices was predicted for before the end of 2023, and a total 2% rise over the next 5 years, in reflection of the current market.
In October, average house price inflation reached -1.1% alongside average mortgage rates of 5%.
Improvements to the housing market were outlined in the King’s Speech in November, highlighting increased rights for renters and leaseholders.

2023 Property Market

Overview

Overall, the 2023 property market experienced lower-than-predicted house price falls and higher-than-anticipated mortgage rates. The rising interest rates have stretched the affordability for many who were planning to move. However, 5-year fixed-rate mortgages have been falling below 5% since their initial rise in July. This alongside rising incomes is improving buying power. However, house prices must fall further to offset the high interest rates. The rebalancing continues!

This year has surely been a rollercoaster. The 2023 property market somersaulted from buyers preferring smaller deposits and relying on mortgage repayments at the start of the year to more cash buyers entering the market due to mortgage affordability pressures.

Currently, while mortgage rates remain historically high compared to recent levels, the mortgage market is much calmer. Both mortgage rates and rental growth have reached their peak, meaning more stability for homebuyers into 2024.

So, what does this mean for next year?

Read our Property Market Forecast for 2024. We cover projected house prices, mortgage rates, rental demand, and what should happen in the market next year to revive activity.

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