UK Property Market Forecast 2023

Category: Market News

After a record-breaking two-year period, which has seen house prices skyrocket across the UK, the property market is settling into a more sustainable period of growth. Whilst interest rates have risen at the end of 2022, there are plenty of positives going into 2023.

In this article, we will see how the market is expected to react in 2023 with interest rates, property prices and buy-to-let mortgages all affected.

Author: Sam Whalley

Digital Marketing Executive

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Will Property Prices Fall?

The UK property market hit extraordinary heights, accelerated by the aftermath of the pandemic. The house prices and demand had risen by an average of 5.8%, setting record heights for the UK property market. After a little turbulence in September 2022, Rightmove is forecasting the market will stabilise closer to pre-pandemic levels. House prices are expected to drop by around 2%, meaning they will still be a healthy 3.8% higher than pre-pandemic levels.

Rightmove has stated that demand is still far higher than it was pre-pandemic. This is because of the housing supply-demand imbalance. For investors, the drop in property prices will open opportunities to invest at a lower price. Therefore, this reduction in price could offer higher yields than seen in previous years as rental demand is still growing across the UK. The property market was growing pre-pandemic, therefore is expected to continue once the market has stabilised.

Will Interest Rates Fall?

Interest rates have risen at the end of 2022, with the Bank of England ending the year with 3.5% base rates. The cause of this was the UK government’s September mini-budget, which spiked inflation. Since September there has been a change in government and the mini-budget was reversed. The aftermath has shown the strength and resilience of the UK property market, which is continuing to operate at a high level.

If an investor is securing a fixed-rate mortgage through a lender, it is expected that interest rates will fall back below 4% in 2023. The interest rates are dropping due to economic stability, which followed the slight blip in September. Rates will continue to fall due to a small reduction in market activity, which has been caused by the high cost of living and the end of the help-to-buy scheme. This causes interest rates to drop because lenders are able to keep up with the demand for mortgage applications.

How are Buy-to-Let Investors Affected?

UK lenders have relaxed affordability rates across the UK for buy-to-let investors. Despite the Bank of England base rate increase. The lenders will benefit investors looking for mortgages. Furthermore, the property price reduction will allow investors with liquid capital a chance to secure a lower LTV mortgage. The increased lending options reduce to amount of interest due over the course of the mortgage.

While options are available for investors looking to use a mortgage, the market is opportune for cash buyers. A cash buyer is going to be able to take advantage of the slight price drop. This will strengthen yields further as the rental demand across the UK is still growing, according to the latest Zoopla report. The rental demand has been continuously growing year on year as an effect of Generation Rent.

What Areas Are Seeing the Highest Growth?

In 2022, the highest-performing areas for property price growth were outside of London, which has seen a steady growth of 5.7%. Areas such as Nottingham, Manchester, Liverpool, and Birmingham have seen growth as high as 10.3%, according to Zoopla’s market report. These areas have seen regeneration projects positively influence property prices in the area. A large number of investors are looking for investment hotspots to watch in 2023. Investors are looking outside of London to see high levels of capital growth as the areas North of the city are growing at a remarkable pace.

If an investor is looking for the highest yields, commuter cities and northern cities are currently seeing high rental demand. This is partially due to the increase of homeworkers across the UK. Massive investment has been made by the governments Levelling Up scheme to transport across the country, which has had a ripple effect on property prices. Cities that were once experiencing slow growth are now benefiting from a property price boom.

CityRise Verdict

The significant growth and record-breaking periods of 2022 were overshadowed by a slight dip at the end of the year. This should not be a cause of concern as the property market has shown stability throughout this time. Looking forward to 2023, property prices and interest rates are both falling slightly, which places investors in a strong position to secure their properties at a lower price.

When looking where to invest it is worth considering areas that have seen growth throughout the last few years. Areas such as Liverpool, Manchester, and Birmingham will continue to see property prices rise in the next few years. These areas also hold high-yielding properties, with newly built apartments being the highest earners. Commuter areas have increased in rental demand, as the cost of living in major cities is high. Therefore, if an investor is working with a slightly lower budget, cities such as Wakefield and Sheffield offer low property prices but fantastic transport links.

If you want to find out more about investment opportunities available, contact our Investment Consultants at CityRise, here.

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