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3 Reasons Why the UK Property Market Could Exceed Expectations in 2023.

Tuesday 10th January 2023

Some experts are forecasting that there will be a decline in UK house prices in 2023, due to the prediction of an increase in mortgage rates to 6.5%. This is expected to result in a decrease in sales and a decline in prices of 8-12%. These predictions are based on the belief that mortgage rates will be high in 2023 and that the economy will continue to struggle until 2024.

However, we have a positive outlook for the UK property market in 2023 and expect that house prices and sales will be better than many anticipate, despite the current uncertainty and difficulties faced by many households.

It is mainly based on the following 3 aspects:

• The banks are showing a willingness to provide loans.

In the past, during the 2007-2009 recession, UK house prices dropped 12% due to a lack of credit and relaxed lending criteria by banks. Before 2007, a significant portion of borrowers did not have to provide proof of income to banks when applying for mortgages.

However, the situation today is different, UK banks are well-capitalized and their plans take into account potential declines in house prices and economic growth. Banks are focusing on mortgages and want to make sure that credit is available in 2023, despite the higher mortgage rates expected than in early 2022. These higher rates will make banks more profitable. To support existing borrowers, banks are offering various options to help them afford higher mortgage rates at the end of fixed-term deals.

It's also likely that mortgage rates will decrease further this year, resulting in lower monthly mortgage payments for first-time buyers who have had difficulty affording them. If mortgage rates continue to decrease, it could attract more first-time homebuyers to enter the market.

• Mortgage Rates Are Falling

There has been a recent decrease in mortgage rates. The government's fiscal plan has stabilized money markets, bringing mortgage rates back down to levels seen earlier this year. This means that by early 2023, the typical mortgage rate for new borrowers with a 5-year fixed rate will be in the range of 4.5% to 5%. The higher the loan-to-value ratio, the higher the mortgage rate, and those with the largest deposits or the highest home equity will receive the best rates.

The Bank of England has also made small increases in the benchmark interest rate to reduce inflation. Additionally, every homeowner who has applied for a mortgage in the last five years will have to prove to the bank that they can afford a mortgage rate of 6.5% to 7%, even if they are currently paying a much lower rate. This is known as a mortgage stress test and is designed to ensure that buyers can afford higher interest rates.

It's important to note that the real estate market has been operating under the assumption of mortgage rates of 6.5% to 7%, which is a reason why the market may be more resilient. If everyone bought a home based on whether they could afford a 2% mortgage rate, home prices would have risen much higher and we would now expect to see much larger price declines.

• Motivation to move still exists

The ongoing pandemic continues to impact people's desire to return home, and the government's plan to make flexible work more accessible to employees will further support this trend.

Rising energy costs and the general increase in the cost of living may also contribute to this trend, particularly for those worried about the operating costs and suitability of their current home for future needs.

All these factors are expected to drive moves in 2023, creating demand for homes for sale in the new year. It's forecasted that one million homes will be sold in 2023, which is a 20% decrease from 2022 levels. Buyers will still be price-conscious, but many sellers have seen a significant increase in their home equity, providing them with more flexibility if they decide to move in the upcoming year.

The UK property market appears to be recovering, as seen in January 2023. The average asking price for properties in the UK rose by 6.3% compared to the same month in the previous year, and is now at £362,438, which is roughly RMB 2.97 million. After a slow period at the end of 2022, the rebound in the new year is greater than expected.

It's worth noting that the number of potential UK buyers contacting real estate agents to purchase a home has increased by 4% compared to the same period in 2019, and by 55% compared to the two weeks before Christmas, which is the largest New Year's rebound since 2016 and an indication of pent-up market demand.