U.K MASSIVE HOUSING CRASH ! 2023 Housing Market Predictions
1. House Prices Are Going Down.
In 2023, there will be significant supply-side shocks that will cause prices to increase due to less supply and more demand. Inflation is currently at 10% and the Bank of England has increased the base rate, causing mortgage rates to rise and property prices to fall. The rental market is seeing an increase in demand as more people are renting due to the increased cost of buying a home. There has also been a net migration of 515,000 people to the country, but not enough houses are being built to accommodate the increase in population.
This lack of supply, combined with the rising cost of renting and the increase in interest rates, is causing affordability to become stretched. As a result, fewer people are able to buy homes and house prices are falling. It is predicted that the real price of property could drop by 30-50% over the next five years, although absolute house prices may start to rise again within that period.
2. Interest Rates Will Rise
In 2023, it is predicted that the base rate will increase to around 4%, but inflation may continue to rise due to wage increases. The government's attempts to control inflation through interest rate increases may not be successful and could result in more strikes and further wage increases. Mervin King, the former governor of the Bank of England, believes that too much money was printed and that interest rates should have been raised earlier and faster. To break the cycle of wage increases leading to price increases, a deeper recession and higher unemployment may be necessary. Inflation is expected to remain above the target of 2% and the value of the pound is predicted to drop by about a third over the next five years. The property market is also expected to see a drop in house prices, with the real price of property potentially falling by 30-50%.
3. Rents Will Increase By 10%
In 2023, it is predicted that rents will continue to increase by about 10%. This is due to a combination of factors including the rise in energy prices, increased affordability issues, and the increased cost of mortgages. More people are expected to move to smaller properties, either because they can't afford the higher rental prices or the higher cost of buying a home with a more expensive mortgage. There is also a trend towards more people seeking out rooms in Houses in Multiple Occupation (HMOs) and smaller properties as they are more affordable. This trend is in contrast to the behavior during the pandemic, when there was a rush to move back into major cities and flats.
4. Property Market Crash?
In 2023, it is predicted that there will be a continuation of the drop in house prices, with an additional 5-10% decrease expected. This drop, combined with the predicted rise in inflation, could result in a real terms decrease of 40% in house prices over a two-year period. The actual headline price of homes may only drop by 20%, but when factoring in the decrease in the value of the pound due to inflation, the real terms price could be much lower. Transaction levels for properties have also decreased, making it easier to negotiate lower prices. These changes are significant and could have a major impact on the housing market over the next two years.
5. Nation House Builders.
In 2023, it is expected that there will be a decrease in the number of houses being built by national house builders. This is due to a drop in demand for their properties, as affordability issues resulting from higher mortgage interest rates have caused fewer people to be able to afford to buy homes. The already high level of net migration to the country, with 515,000 more people coming to the country than leaving in the past year, is also contributing to the shortage of housing. This combination of factors is likely to lead to an even tighter rental market in the coming year, and a longer term shortage in the residential property market.
6. Renters Reform.
As interest rates in the UK continue to rise, it is likely that the Bank of England will not increase them as much as necessary to control inflation, which has been driven in part by wage increases. This could result in a cycle of wage increases leading to higher prices for goods and services, which in turn drives further wage increases. To break this cycle, the Bank of England will likely need to increase interest rates significantly, potentially leading to a deeper recession and increased unemployment.
The rising cost of rent and the increasing difficulty of affording mortgages is leading more people to downsize and seek out smaller properties. As a result, there is a growing demand for smaller properties, including HMOs, and the rental market is expected to become even tighter in the coming year.
The national house builders in the UK are already cutting back due to reduced demand for their properties, as fewer people are able to afford the higher mortgage interest rates. This reduction in the number of new houses being built is only expected to exacerbate the shortage of residential properties in the country, which has been exacerbated by net migration levels of over 500,000 in the past year.
The UK's Renter's Reform Bill, which would remove the ability of landlords to evict tenants for any reason and limit rent increases to once per year, is expected to be reintroduced in 2024. The bill would also establish a new landlord ombudsman scheme and prohibit landlords from imposing blanket bans on benefit tenants. However, it is likely that most benefit tenants will still not meet the referencing criteria of most landlords and letting agencies.
