The last few years have been very topsy turvy as far as the housing market has been concerned. During Covid house viewings were suspended completely, when we came out of lockdown people looked to move to more rural locations and had a different emphasis on the priorities for their homes. The market boomed and house prices and rents have been growing rapidly over the last few years. On top of this we had Brexit (which created uncertainty) and more recently the war in Ukraine all of which have contributed to increased costs of living, high inflation and large increases in interest rates. Add to this increased regulation in the private rented sector and you can see why the housing market is being scrutinised. In this article we will look at leading property experts’ predictions for what will happen in the housing market moving into 2023.
Let us first take a look at the Sales Market.
In early 2020 the Bank of England, in response to the financial downturn caused by the Covid-19 pandemic reduced interest rates down to a historic low of 0.1%. This in turn led to low mortgage rates. Back in July 2020 the average 2 year fixed mortgage had an interest rate of 1.99% rising to around 2.49% in December of that year. Since February 2021 inflation has been increasing steadily from relatively low levels of 0.7% (Consumer price index including housing) to more normal levels of around 2.5% in August of 2021. Since then, though inflation has skyrocketed and in September 2022 it was at 8.8% which is well above the target set by the Bank of England of 2%. In order to try to get inflation back under control, the Bank of England has been increasing interest rates which now stand at 3.5% as of the beginning of January 2023. The impact of this was that mortgage lenders increased their mortgage rates accordingly and the average two year fixed rate in October was at 6.46% according to the Guardian. In addition to this around 1,000 mortgage products were taken off the market after the mini-budget in September 2022. The rise in interest rates and the removal of a large number of mortgage products has made borrowing much more expensive which has, according to the RICS has led to a reduction in new buyer enquiries and also a reduction in new instructions to sell. This will, it is believed, lead to a reduction in house prices over the next 12 months. Some experts believe that house prices will fall by at least 10% in 2023. This is mostly driven by the cost of mortgages. With mortgage rates as a historical high lenders will have to lend less money to buyers to ensure the repayments are affordable. This will mean that buyers will either not buy, or buy cheaper properties which could drive a reduction in prices.
It is thought that interest rates will settle down in 2023, but that rates of 4-5% will become the new normal into 2023. According to reports it is expected that rates will increase one or two more times in jumps of around 0.5% but then settle down. According to the Bank of England Inflation is due to stay high and peak at around 13% before dropping sharply and coming back to the target of 2% in around 2 years. As such it can be expected that interest rates are not going to go back to the historical lows, we have seen over the last few years which will temper the market a little.
On the positive side, the recent reversal of the National insurance increase and the help with energy bill announced by the Government is helping to reduce the overall impact and with interest rates stabilising and house prices dropping it is expected that the market will rebound towards the end of 2023.
And now for the private rented sector.
As far as the rental market is concerned, the Royal Institute of Chartered Surveyors are suggesting that there will continue to be a reduction in rental property supply in 2023 which will push up rents by around 4.5%. This is because landlords are either exiting the rental market or compensating for increased mortgage payments by increasing rent.
In summary, 2023 will be another turbulent year, but with inflation set to continue rising further, rises in interest rates are likely to happen in 2023. This will have the effect of tempering what has been a very buoyant market and property prices are expected to drop by around 10% and interest rates are set to stabilise around 4.5%. This will have a knock-on effect in the rental market and it is expected that rental property supply will remain low with rents rising up to 4.5% in 2023.
Of course, all of this is pure conjecture and you should always seek professional financial advice pertinent to your circumstances. The information contained in this article should not be relied upon in place of professional financial advice.
