2023 Property Market Outlook

Inflation refers to the measurement of how quickly prices have risen. As of March 2022, these prices had risen up to 7%, which is 5% higher than the target inflation percentage. Higher prices for goods is one of the main reasons for this. After covid restrictions eased and countries around the world began to resume their normal activities, people started to buy more goods. But the companies and corporations selling these goods have had problems getting enough of them to sell to customers. This has led to higher prices, especially when considering goods imported from abroad. Higher energy prices have also played a big role. Large increases in oil and gas prices have pushed up petrol prices and energy bills. One way of handling inflation is by raising interest rates. The Bank of England raised the UK’s most important interest rate (the Bank Rate) from 0.1% to 0.25% in December 2021, then to 0.5% in February 2022, then to 0.75% in March 2022, and to 1% in May 2022. As of the 17th of October, this rate is now at 2.25%, with potential to climb even higher, as The Bank of England have announced that these interest rates may fluctuate further over the rest of 2022. However, these rates will be back to the target rate in around two years after it peaks. The reason that The Bank of England expects these rates to equalise quickly is because they do not expect the circumstances driving these rates to continue for much longer. Once the circumstances driving these higher rates of inflation cease, the inflation itself will return to normal, predicted rates.

Russia’s invasion of Ukraine has also led to large scale increases in the prices of energy and food. Coupled with the lockdowns in China, these political events are having an economic impact, making it harder to import goods from overseas. As a result of these factors, The Bank of England expects inflation to rise to around 10% by the end of 2022. Political events, such as the COVID-19 pandemic in 2020, tend to affect mortgage and interest rates. This can be said for any political or social issue of note happening throughout the course of history: for example, mortgage rates have been affected by World War II, the oil embargo in the 1970s, the housing market crash in 2007 and the Brexit announcement in 2016. Despite the pressures of the pandemic and Brexit related uncertainty, the British economy rebounded in 2021 following the sharp contraction experienced during 2020. This goes to show that no matter what political road bump we experience, the economy will always recover and bounce back.

Prior to the war, global GDP growth was stronger than expected partly because Omicron weighed on activity by less than initially predicted by experts. The Russian invasion of Ukraine, however, pushed commodity prices up further, lifted the outlook for Global consumer price inflation, and also led to deterioration in the near term outlook for global growth. These complications are likely to act as a drag on global GDP growth, which affects the UK market outlook. Similarly to the effect of the war between Russia and Ukraine, the pandemic was an obstacle for the global economy. When the UK entered the lockdown in March 2020, the economic outlook was uncertain, at best. Inevitably, this meant that many people put their house purchases on hold. As a consequence, house price growth fell to its lowest point since 2011 and the total number of sales per month also dropped to a historic low. With the removal of the furlough scheme and the lifting of other restrictions, the UK housing market rebounded in dramatic style. Thanks to initiatives such as the Stamp Duty holiday, where the UK government effectively made house prices cheaper for interested buyers, sales per month and house prices started rising quickly, reaching higher than pre-Covid levels.

Economic activity has also recovered much faster than expected from the pandemic slowdown, with higher saving rates boosting financial wealth and fiscal support raising household income across the board. Moreover, despite the end of the government’s Stamp Duty holiday period, the market is showing little evidence that it is slowing down any time soon. This is partly due to the incredibly low cost of borrowing. For investors looking for long-term gains, the UK’s property currently represents a time of opportunity, particularly for investors searching for capital growth potential.

A record number of property buyers in the UK are currently competing over low levels of property stock, meaning that chain free properties are more sought after than ever. Data shows that in Q1, investors made up 14% of buyers, which is an increase from the 12% recorded in Q1 2021. Meanwhile, first-time buyer numbers are at a record high, making up 26% of all purchases so far this year, compared to 24% in 2021. These statistics show that despite the current political and economical circumstances, the property market is thriving.

Even though inflation in the UK is expected to peak at 11%, investors of buy-to-let housing can use rental income to help offset some negative effects, making UK housing a reasonably safe bet in uncertain times. Not only for those who live in the UK, foreign investors can also expect to see a large return on UK property opportunities during this time. Despite the pound weakening in value, foreign investors will now be able to get more for their money when buying UK property. It is now $1.11 for every £1, when it used to be $1.4 for every £1. This means that the UK is an attractive location for foreign investment.

It is also important to note that domestic buy-to-let investors borrowed a record £18 billion in 2022, indicating the market is not only recovering, but rapidly growing. Additionally, overseas investors now own around £90.7 billion of property. These figures are set to grow further as foreign investors are attracted by the price growth witnessed in the UK property market over the past few years.