Paul’s property market predictions and advice for 2022-23

Posted: April, 2023

Today (1^st September 2022), Nationwide released the news that UK house prices rose by 10% this year and that the typical property price has grown by £50,000 to £273,751 since 2020.

 

The annual growth price in house prices comes at a time when experts predict a recession, amid the cost-of-living crisis. It has left many people wondering what is going to happen to the UK property market.

 

Paul Keighley, our residential partner, shares his thoughts and predictions on the property market for 2022-23…

 

“The property market is largely driven by supply and demand. Since the pandemic, when the government introduced the stamp duty holiday to stimulate the sector, we have experienced an incredibly buoyant market where demand outstripped the supply of homes. As soon as properties were hitting the market, they were getting snapped up, often over-asking price. This led to a continual growth in property prices.

 

“We are now at a point where this growth in property prices is levelling off because most households who were motivated to move, did so when they could take advantage of the stamp duty policy saving. The pending slowdown also tends to make people more nervous to move, meaning that there will be less competition for houses and more homes will be available.

 

“This correction in supply and demand means the market may cool off and prices will slow down, but not necessarily fall. This is referred to as a price correction and more people will enter the market again, as property prices will look more attractive. There will always be people who still need to move home for family reasons, whether it’s a growing family, a breakup, a relocation, and so on.

 

“Statistics in April showed that 365,000 households wanted to move and 328,000 will be moving soon. There are an estimated 27.8m households in the UK, meaning that around 2.5% of households still want to move.”

 

What happens to property in a recession?

 

“During my 37 years in property, I have experienced the early 1990s recession, the slowdown of 2008, and the COVID-19 pandemic.

 

“Typically, during recession, people expect house prices to fall, but this may not be the case, as interests remain comparatively low and as long as this remains the case, prices may just fluctuate a little. The Bank of England forecasts don’t suggest a repeat of previous downturns, but lenders do become more risk averse. This, coupled with the rising interest rates, might mean that it becomes more difficult to obtain a mortgage and down valuations may become more common.”

 

Will my mortgage be more expensive?

 

“The Bank of England base rate is now 1.75%, and it is likely to increase again. That means that any mortgages linked to interest rates will rise by 0.5%. So, if you are currently on a variable deal then your monthly bills will go up. Most people are on a fixed rate loan, but when that fixed term ends, that is likely to increase. If your mortgage deal comes to an end this year, it might make sense to get a new deal now before they increase again.

 

“A typical homeowner with a £400,000 mortgage on a tracker rate will see their monthly payments jump by £99 – or £1,188 a year. The average homeowner with a £250,000 variable mortgage will see their monthly costs jump by £66 – or £792 a year.”

 

What will this mean for first time buyers?

 

“When a market cools off, there are more homes available and less competition, which is positive for first time buyers, but it doesn’t necessarily mean that property will become cheaper. So, I wouldn’t advise you wait around for prices to drop, as you may miss out on a perfect home for you.”

 

What will happen to Buy to Let?

 

“Rising interest rates and costs of repairs, insurance, and maintenance, coupled with increasing regulations, means that 20% of landlords are considering selling off their portfolios. Landlords usually work to a profit margin of 6%, but this will be squeezed, meaning that smaller landlords with just a handful of properties, may consider selling up.

 

“However, this may mean that more properties suitable for first time buyers will hit the market.”

 

Should you still buy a home?

 

“If you have done your calculations properly and you can still comfortably afford the home you want to move to, I would recommend you proceed with a purchase. Property prices may not necessarily drop, especially in areas that are popular or up-and-coming. So don’t miss out on the opportunity to buy a home you love in a great area for fear of what may happen.”

 

Is it sensible to buy a new build home?

 

“During a recession, it can be difficult to find a buyer for your existing home. Increasingly, house builders are offering their new home buyers a part-exchange on their existing home, which can be a good option.

 

“Many developers also sign up to government schemes such as shared ownership or help to buy, where the government will lend you up to 20% of the value of your home via an equity loan, meaning you’ll need just a 5% deposit and a 75% mortgage.

 

“They are much more energy efficient than an older or period home too, meaning your energy bills will be significantly lower.”

 

Should I use the time for a home renovation and improvements?

 

“It could be a sensible period to renovate your home, spending on things that will bring your energy bills down, such as insulation, curtains, an energy efficient boiler, etc. This could boost the equity in your home, meaning that when you do come to move, you have a larger deposit.”