Will the UK’s real estate market suffer irrevocably in 2023? It is difficult to say; however, there is buzz that there could be a mild recession in the UK this year. And although house prices rose steeply in 2021 and most of 2022, the past few months have been witnessing a price dip.
What makes the situation more difficult for everyone in the real estate ecosystem is that –
– Interest rates have gone up, which translates to more expensive mortgages
– Inflation has risen, which translates to the lower spending power of people
How have house prices changed in the UK?
In 2021 and much of 2022, the pace of growth of house prices was much more than the post-2008 recession price inflation. However, this has dipped consistently over the last few months. As a result, the yearly growth rate is almost heading to zero.
How does a drop in house prices affect the real estate market?
In November 2022, the government was advised that house prices would fall by 9% in two years.
– However, since interest rates have significantly gone up, people cannot afford to borrow as much as they could previously. This means lower offers on houses and thus less demand. Lesser transactions and offers translate to a weaker real estate market.
– The immediate effect is on the people who are considering a move. While some prospective sellers will delay their sale, homeowners find themselves with less money to set aside for moving.
– If interest rates continue to be high, more people will have to shift from the current fixed-price mortgage to revised rates on the higher side. And when people find these unaffordable, they may decide to sell their properties.
– First-time buyers may find prices more affordable, thus making it easier for them to get on the property ladder. But getting an affordable mortgage could be a task.
– Homeowners may find themselves in negative equity because their borrowed amount could be higher than their property’s current value.
All this adds up to a more disturbing economic slowdown as people would feel financially insecure and end up saving more than spending.
Does the dip mean a house price crash?
In November 2022, the Bank of England hiked their interest rate by 0.75% to 3%, the biggest hike since 1989. Post the announcement of the mini-budget, there was speculation that the interest rate would be more than 6% this year. However, it is now expected to be less than 5%.
The pre-recession scenario was ripe with 100% mortgages and cashback offers. However, the recession led to extremely tight and stringent rules for mortgage lending.
For those who have enough savings built up, this could be the opportune time for homeownership. Due to rate cuts, buying a home would be more affordable. So if you are planning to buy a house or property, Glentree Estates can assist you.