The total value of homes across the UK reached a record £8.68 trillion at the end of 2022 according to Savills. The figure represented a rise of just over 5% or £425 billion from a year earlier, however it was a smaller rise than the £500 billion annual increase in 2020. Savills said that it expected rising mortgage costs to lead to a dip in 2023.
Based on the average UK income figures – for a single earner on just over £32,000 a year, the average house costs around nine times their earnings according to the Office for National Statistics. This represents the worst affordability ratio since 1876 as higher interest rates continue to plague the UK property market. The start of 2023 in the property market has been one stained with instability. The knock-on effect of the Bank of England’s decision to raise interest rates to 3.5% and again to 4% to keep up with inflation, has resulted in dramatic increases in mortgage rates.
However, despite the bleak start to 2023 and while remaining in negative territory, the sales outlook for the next 12 months has halved to -20% from -42% in December, with market analysts predicting that inflation has reached its peak and buyers will make a comeback to the market. In light of this promising news, property expert and Group Chairman of Cornerstone Tax, David Hannah, explains how Britain could see a housing market revival in the second half of 2023.
Private landlords will play an important role in driving the property market throughout the rest of the year by providing much-needed stock. They sold 35,000 more properties than they bought across 2022, according to Hamptons, as the jump in mortgage costs and tax changes make being a buy-to-let landlord an increasingly unappealing opportunity. Further exacerbating the private rental sector, research from RSM UK estimates that landlords will pay more than £1 billion extra in tax this year compared to four years ago as reliefs are removed and frozen tax allowances take hold.
David Hannah, Group Chairman at Cornerstone Tax, explains:
“Unsurprisingly, we have seen a fall in market activity at the start of 2023 – this is primarily due to the increasing cost of living eroding away at people’s spending power as house prices have reached the worst affordability ratio since 1876. There is also a large number of would-be-buyers who are waiting for house prices to bottom out, resulting in lower demand. The recent report showing that the total value of homes across the UK reached a record figure, highlighting the growth of the property market and the opportunities available to buyers, if they’re willing to take them.
“I have always said that the UK property market has tended to be more stable than any other global property market, and if the rate of inflation continues to fall, I have no doubt we will see a return to a higher level of confidence and stability for the second half of 2023. The fact that the UK market has continued to be an international market has meant that even if domestic demand drops, overseas demand will continue to drive the market.”
“Private landlords are also a pivotal part of the property market, however there is currently an exodus of buy-to-let landlords. Much like buyers, I think there are opportunities for private landlords in the current property market who could provide much-needed stock.”
