House Price Predictions Revised

Following the recent Bank of England Base Rate rises, industry experts and economists have adjusted their predictions for house price growth for the remainder of the year. With talk of a recession looming, what can landlords expect looking forward?

Although far later than anyone expected, the house price surge is finally easing, albeit modestly. Nationwide reported a slight annual decrease from 11.2% in May to 10.7% in June. Rightmove recently reported a reduction in asking prices for the first time this year; however, the 1.3% decrease is on par with the annual August trend.

The senior UK economist at Pantheon Macroeconomics expects to see sold house prices drop by approximately 2% in the second half of this year. This comes as a result of continued mortgage rate rises, partly caused by the fifth Bank of England Base Rate rise this year alone.

Leading estate agency Knight Frank has similar predictions, with expectations of price growth to remain high, but slightly drop by the end of the year. Although the latest annual house price growth rates remain above 10%, Knight Frank anticipates this will return to single digits by the end of the year. However, Knight Frank has increased their annual growth predictions to 8%, from 5%, as it becomes clear house prices will not drop off as quickly as previously anticipated.

Looking forward to 2023, Pantheon predicts house prices to increase by a further 2.5%, but only if the Bank of England halts their Base Rate increases. Knight Frank maintains that over the next five years, UK property prices will increase by an average of 16.9%; good news for property investors who’ve recently secured a five-year fixed BTL mortgage. Combined with the rental income landlords will take over this time, property looks to remain a reliable and good return on investment.

Amidst a 40-year inflation high and interest rates at their highest peak in 13 years, the market for borrowers remains tough. Whilst Knight Frank adjusted their house price forecast up for the year, many property investors continue to struggle with these unprecedented levels of growth. Pantheon Macroeconomics notes that, even if house prices steady, the increase in mortgage rates would continue to cause problems for borrowers.

What is causing the continued house price growth?

It is clear that the supply and demand disparity continues to affect the property market. Knight Frank believe that rising interest rates and inflation levels are applying further pressure on the discrepancy between supply and demand.

For those looking to sell, the inability to find properties to purchase only further feeds the vicious cycle mirrored in both the buy to let and residential markets. The stamp duty holiday last year saw a surge in market activity, driving prices upwards, a trend that has only continued since the holiday’s end.

However, on a positive note, Knight Frank reported an increase in new listings in the weeks following the Base Rate rise to 1.25%. This can perhaps be attributed to many sellers believing that prices have peaked and that now is the optimum time to receive the highest possible price on their property. We will have to wait and see whether this trend continues following the August Base Rate increase. An increase in supply will help bring down prices, providing more opportunities for investors looking to expand their BTL portfolios.

Tom Bill, Head of UK Residential Research at Knight Frank, commented that “House price growth is peaking as supply rebuilds and mortgage rates normalise”. However, he also noted that it will take time for these to return to normal levels, and to expect this to be a much more gradual transition rather than a sudden drop.

Interestingly, Bill comments that the knock-on impact of “low supply has also kept rental value growth high.” Consequently, Knight Frank also adjusted their rental forecasts for 2022, “we now expect rental value growth of 11% in prime central London and 9% in prime outer London, up from 8% and 5% respectively.”

Looking to the future, Bill expects “stock levels to be particularly squeezed over the summer as high demand from corporate tenants and students exceeds available supply”. As such, landlords can anticipate a slow return to a much more balanced market, allowing for more property stock and choice when considering further investments.

Property investors need to be primed and ready to secure the best deals and properties as supply increases and prices cool. Increased property values may mean you have more available equity in your existing portfolio, which you can release via remortgage, ready to form deposits on new purchases.

Our experienced and specialist brokers can help you cost up the best property finance solution for you, in order to maximise the return on your investments. Submit an enquiry today, and one of our team will get back to you, or call us on 0345 345 6788.

17th August 2022