2023 UK Property Market Predictions - What Could Happen to UK Housing Next Year?

2022 was an exciting year for the UK property market, as the post covid recovery continued. There was record growth in house prices and rents across the UK which is great news for UK property investors and generating high rates of return.

The most recent data for 2022 from the Office for National Statistics (ONS) indicated that house prices increased by over £33,000 over the last 12 months, a rise of 12.6%.

 New Years are often seen as a fresh start, and for those looking to invest their money, property is always one that is considered. Investing in property is one of the most secure ways of investing your money. It offers the chance of good investment returns in a stable market for long-term investors.

Buy-to-let properties make investors’ money in 2 ways, from the rental income (Yield) and appreciation, which is where your property increases in value over time so that when you sell, you make a profit.

As 2022 has ended, you may be wondering what could happen in 2023? With that question in mind, we have created this guide to share what we think some of the things 2023 could bring and what this means to investors.

Predictions for 2023 in the UK Property Market

2022 was a very good year in terms of capital appreciation, as house prices increased over the course of the year. The average house price in the UK, as of October 2022 was £296,000 (As per ONS).

Comparing this to the average price in December 2021, £275,000, then you can see this is an impressive increase. In Some areas of the UK there were even higher levels of growth, such as the North-West. Places such as Manchester and Liverpool became hotspots and experienced annual growth of 16.1% which is a lot higher than the national average.

However, it is unlikely that 2023 will deliver the same level of growth as new factors have emerged towards the end of the year, the cost-of-living crisis and increased interest rates. It is also worth noting that the UK has recovered from the pandemic crisis which saw high levels of demand from buyers against a background of short supply in the market.

While there is still high demand for housing, the rise of house prices is not balanced with cost-of-living crisis that the world is currently experiencing, and higher interest rates that make mortgages more expensive.

Growth will slow down in 2023 and many predict a slight fall in prices as the UK economy adjusts to the new norms, after historically low interest rates for the past 12 years and low inflation.

There are a lot of things to consider when making a prediction and how this will affect the property market. Previous recessions give us an insight and why it happened, and we can compare this to the current market. These are:

• Employment in the UK is historically high and there is no predicted return to high unemployment.
• Equity – Due to stringent lending criteria for the past 14 years after the Financial crisis many homeowners with mortgages have equity in their properties and have no reason to sell, or forced to sell their properties.
• There is a big shortage of properties in the UK, estimated recently by JLL to be more 600,000 at this time, and there is no quick fix for this (UK Government has just dropped its requirement to build 300,000 new homes).

2023 will be a year to return to normalisation after a chaotic 2022, where housing will become more affordable for many.

After 2023 Savills’ forecast predicts that house prices will rise overall by 6.2% by 2027, so if there is a slight drop in house prices in 2023, it’s not something that will be permanent.

2023 for investors can present a prime opportunity to invest in UK property while prices remain affordable but set to increase. For example, in 2020, house prices in the UK saw a temporary fall at the beginning of the pandemic, dropping on average by 0.6% between March and April 2020. By the beginning of 2021, the average UK property prices had risen to record levels and continued to rise until now. This meant that investors made strong capital appreciation.

Finance & Mortgages

Mortgages will become more affordable as the market adjusts to the new UK budget (following on from the September disaster) but they will not return to the historical lows seen over the last decade.

This can make off-plan more interesting for investors as they have payment plans. The last few months of 2022 saw mortgage rates increase to combat inflation. In October, they reached 14-year highs, and even when they began to calm down in November, six-year mortgage rates were still 5.95% according to Bloomberg.

For investors this provides new challenges as Buy-to-let mortgages traditionally have higher interest rates than standard residential mortgages due to the increased risk. Also, the fact that you pay off the accrued interest throughout the mortgage rather than the mortgage itself.

If the base levels of interest on mortgages are rising, then buy-to-let mortgages will become less attractive. In 2023, mortgage rates will likely reduce though as they are already lower than in October as there is a more stable situation in the UK politically and economically.

The Guardian reports that financial markets believe that mortgage rates will peak at 4.75% next year after the Bank of England carries out further actions to clamp down on inflation.

 Looking at these predictions, investors should consider investing in off-plan property. Off-plan properties tend to be more affordable and suitable for investors. They can also have a flexible payment plan, and in some cases, investors can avoid having to borrow a buy-to-let mortgage for their investment property and reducing costs.

If you want to learn more about the benefits of investing in off-plan property, our guide to off-plan investing offers lots of useful free information, see this link. Ever since the 2008 recession, interest rates have been low, and many have now come to believe that this is the norm, but it is unlikely that these lower rates will return. Given the higher rates of interest this will affect the buying power of potential purchasers as they will be paying more each month for their property than they may have done before.

UK Regions

Throughout 2022, the North-West was one of the best areas to invest in property for several reasons. Major cities like Liverpool and Manchester offered growing young populations, some of the best universities in the UK, high rental yields and affordable property prices.

For example, Liverpool saw house prices rise by over £18,000 to just over £180,000 in a 12-month span, a rapid growth that remains highly affordable compared to other major UK cities.

Manchester similarly saw strong growth. As one of the largest cities in the UK, Manchester’s property prices rose by 13.6% from October 2021 to October 2022, which is above the national average for the same period.

When you consider this in combination with the huge student populations of both cities, the major regeneration schemes such as the Baltic Triangle and the Spinningfields project and the great job opportunities for young professionals, it’s easy to see why many investors chose the North-West in 2022.

The good news is that despite the weathering that the UK housing market will potentially endure in 2023, the North-West and these cities are expected to come out the other side in a strong position.

Savills predicts that the North-West will see a 5-year growth of 11.7%, the highest level of
growth of any region in the UK.

 This is great news for investors, both experienced and new, as it means the North-West will remain one of the best areas for investing in UK property for the foreseeable future, while those who have already made the jump can be assured that their investment portfolios will be secure.

JLL’s forecast also predicts that Manchester will be one of the few UK cities to see growth in 2023, as it forecasts that the city will see sales prices grow by 1.5% over the course of the year. This is one of the highest levels of growth that they predict for any UK city.

With these industry experts predicting that the North-West will remain a property investment hotspot for 2023, you can safely bet on buy-to-let properties in Liverpool and Manchester in the new year. Savills predicts that the North-West will see a 5-year growth of 11.7%, the highest level of growth of any region in the UK.

GBP Currency

A Weak GBP Will Mean UK Investment Is a Viable Option for overseas Buyers 2022 saw the GBP fall to record low levels because of the political uncertainty in Autumn.

In September, the Pound fell to its lowest value against the dollar since 1985 and those currencies pegged to the dollar, such as AED and SAR.

While this has caused many to be more cautious with their money, one group that this turn of events has benefited is foreign investors purchasing property in the UK. Due to the lower value of the GBP, which has stabilised as we head into 2023 but has not returned to its prior levels, it is more viable than ever to invest from outside of the UK.

This is because you can get more value converting foreign currencies into GBP than before. 2023 is expected to continue this trend, as the GBP’s value will likely continue to remain low in the new year.

The UK will remain in a recession, which will affect the value of the Pound moving forward. Current industry predictions expect the GBP/Euro value to be around £1.0750, lower than the current rate of conversion. When you combine this with the slump that other popular property markets around the world are experiencing, such as Hong Kong, the UK property market looks especially promising for those investing from overseas.

For foreign investors, this means they can get better value for their money by investing in UK property and will benefit the most from this period of economic recession.