MHHG estate agents

• In 2022, the value of houses in the UK increased by 7.2%.
• However, the rate of growth slowed significantly in the last quarter and is predicted to become negative in the first quarter of the year.
• The difference between the asking price and the final sale price has increased to 4%.
• From the perspective of the region, it is expected that flats and houses in urban areas will do better in 2023.

• Property Demands Decreased, but the property market returned to normal.

The decline in demand for housing, which was caused by a recent budget announcement, has leveled off. Demand for houses is currently 50% lower than it was last year, while the number of houses being sold (subject to contract) is 28% lower. This suggests that there are still committed buyers in the market, as sellers are willing to lower their asking prices in order to make a sale.

Most measures of market activity are currently similar to the levels seen in the pre-pandemic years of 2017-2019. Some people are referring to this as a return to normal market conditions, although these years were considered average in terms of market activity and consumer sentiment due to political and economic uncertainties.

• House Price Increased, but the rate of price increase has slowed significantly.

There has been a significant decrease in demand for housing since the summer, which has caused the upward trend in house prices to slow. On average, house prices are currently 7.2% higher than they were last year, an increase of £17,500.

However, the rate of growth in house prices has slowed significantly in the last few months, from over 2% to just 0.3%. The annualized growth rate is only 1.4%. It is expected that the index for house prices will show a quarterly decrease in the first half of 2023, causing the annual rate to become negative by the middle of the year.

• Specific For Urban Areas

Buyers are interested in urban areas where there are more job opportunities and services. Houses in city suburbs and commuter areas that are suitable for families have seen higher-than-average demand over the past year, while demand in city centers has been weaker. Postal areas including Bradford, Swindon, and Coventry, have all seen above-average demand. These areas all have their own local employment opportunities, but they are also located near or have good transportation connections to larger employment centers such as London, Leeds, Manchester, and Birmingham. Continued employment growth in these affordable city regions is expected to drive demand for housing in 2023.

• Affordability will be the main factor influencing the housing market

In the coming year and beyond, affordability will be the main factor influencing the housing market. This will be affected by mortgage rates, household incomes, and the actual value of houses. When housing is less affordable, fewer households will be able to afford to buy, which will weaken demand and impact the volume and pricing of sales. On the other hand, in markets with lower average house prices that are more affordable, demand will be stronger.

Higher mortgage rates increase the income needed to buy a house and make it harder for those taking out a mortgage (which accounts for 7 in 10 sales) to afford a home. This impact is greatest in high-value areas where mortgages are larger. Over the last five years, most housing markets have seen house price gains that are higher than the rate of consumer price inflation and average earnings (+22%). Economic growth and good affordability have enabled these above-average price gains, which have been supported by lower mortgage rates. The Oldham postal area has seen the highest price increases since 2017 (+47%), while other high-growth markets include Newport, Swansea, and Bolton.

We expect house price growth to slow in these high-growth markets in 2023. Our national outlook is for UK house prices to fall by 5% next year. Price falls in more affordable markets are likely to be lower than average, as the impact of higher mortgage rates on buying power will be less severe in these markets. This is supported by evidence of continued above-average demand in more affordable urban areas.

• Flats will be more worth to investment

The value of flats has not increased as much as the rest of the housing market. Flats make up about 20% of homes in the UK, but their price inflation has lagged behind that of houses. The chart above shows the average price of flats and houses since 2002.

The average price of a house in London is now 1.7 times the price of a flat, up from 1.4 times a decade ago. The same is true across the rest of the UK, where the price differential is currently 2.1 times, the highest it has been in 20 years.

We expect there to be increased demand for flats in 2023 as buyers look for better value for money. This will also be supported by improving sentiment towards flats as the government works to address cladding issues in most buildings. Only a small proportion of UK apartments are affected by cladding, providing opportunities for buyers seeking better value in 2023.