UK Housing Market 2023 Predictions


2022 has been quite a year for the UK economy. Record levels of inflation, record lows for the Pound and talk of a recession of record length.

Against much of this backdrop of permacrisis, the UK housing market carried on relatively serenely, seeing repeated record monthly prince rises and huge buyer demand.

That is, until the brief, but seismic, intervention of a mini-budget from short-lived chancellor, Kwasi Kwarteng which was then hastily reversed by Jeremy Hunt.

Cue interest rate and mortgage chaos, which saw hundreds of mortgages pulled from the market and affordability checks effectively barring buyers who could, a few weeks ago, have borrowed happily.

Unsurprisingly, the impact of this has quickly been felt in the UK housing market, with Zoopla’s latest house price report highlighting a 44% reduction in buyer demand since the mini-budget. Nonetheless, October still saw year-on-year house prices increase by 7.8%. Although slower than in previous months, this still represents an impressive level of capital growth.

So, with so many factors at play, what are the predictions for 2023?

No housing market crash

Zoopla’s headline takeaway from their analysis is that there won’t be a housing crash in the UK. Overall, they expect house prices to fall 5%, concentrated in the high-value markets that rely on mortgages and a therefore more sensitive to elevated mortgage rates.

Of course, this means that many cities across the UK, where affordability is good and demand is high, will likely see ongoing house price increases. As ever with the UK housing market, regional performance will vary.

Zoopla underlines that this rather than collapsing, UK housing is, “transitioning from an unsustainably strong market to a more balanced one”.

A return to normal

Lloyds Bank go harder on their headline figure, predicting an 8% drop in housing prices in their “most likely” scenario. Best case would see a 2.7% fall and a worst case (which would require the unlikely economic background of inflation at 14.3%) of a 17.9% drop.

Britain’s biggest mortgage lender posits that house prices will return to their mid-2021 levels, effectively wiping out the pandemic-induced mania that has lead to a slightly overheated housing market.

After the “race-for-space” of Covid and the Stamp Duty holiday, it’s arguable that house prices were only ever likely to dip.

Regional forecasts show resilience outside London

Savills regional forecast for house prices over the next 5 years paints a picture of resilience and even buoyancy outside London.

In the UK as a whole, they predict house prices to fall 10% in 2023, with London experiencing 12.5% declines whilst, at the other end of the spectrum, the North West, Humber, Wales and the North East seeing smaller declines of 8.5%.

However, they predict a quick recovery with house prices rising very slightly in 2024 before beginning to sharply increase from 2026 onwards. Looked at over a 5-year period, some regions like the North West are predicted to enjoy 11.7% house price increase.

Table of regional house prices changes in the UK

In this way, any predicted slump is likely to be similar to the blip following the financial crash of 2008. At that time, it took around 2 years for average house prices to recover and, from then onwards, they kept growing.

As ever, capital appreciation over the mid- to long-term on UK property is likely to be excellent, offering something most assets can’t match over the same period.

Ongoing demand for rental properties

Of course, the knock on effect of higher mortgage rates has been to make potential buyers put their purchase plans on hold and continue to rent. Rising rates have made the housing market less accessible.

This in term has forced up rental values, with Rightmove reporting that the number of people enquiring about homes to rent is up 23% on this time last year. On top of this, supply for smaller properties – studios to 2-beds – is very low. They point out that there were 26% fewer homes available to rent in Q3 2022 than the pre-pandemic average.

Of course, these very smaller properties are the typical properties we sell to investors. With the right capital, they are affordable and can be quickly tenanted at top of market rents.

Savills are predicting this surge in rental values to continue at least into next year, with UK average rents expected to have risen 10% in 2022 and 6.5% in 2023. Compounded over 2022-26, they estimate a 27.3% rise in UK rents.

How price adjustments will support investors

Whilst price falls impact the capital appreciation of existing assets, they do give investors with sufficient capital the opportunity to buy properties for less outlay. Buying at the bottom of the market leaves more headroom for eventual capital growth.

As Savills points out, “Investors, particularly those with cash to hand or that have registered as limited companies, will take advantage of price adjustments to secure stock with less competition from mortgaged owner occupiers. Institutional investor demand for purpose-built homes for rent remains strong, with returns still looking resilient compared to other asset classes.”

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