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Will UK House Prices Crash in 2023

Will UK House Prices Crash in 2023?

UK property prices will likely soften during 2023. After years of significant increases, why is this happening now, how much could property values fall, and what opportunities does this provide?


Will UK property prices fall in 2023?   

Following a 41-year-high inflation rate of 11.1% in October 2022 and a significant cost-of-living crisis, the UK is now entering a recession meaning the economy will shrink and consumer spending power will decrease. At the same time, rising mortgage interest rates mean that the cost of borrowing has increased, making it more challenging for many to secure the finance they need to secure their desired property.    

However, average property prices aren’t currently falling. According to Nationwide’s most recent House Price Index, we’ve seen the rate of growth slowing; average property prices still increased by 2.8% in December 2022. Given the wider socio-economic situation (more on that in a moment), the economists at Nationwide feel it’s very unlikely we’ll see a “crash”.  

As the cost-of-living crisis continues, demand for property purchases will likely diminish further. Demand had already decreased by 50% in December 2022 compared to the year before. With less demand and less competition per property, prices will soften. Nevertheless, the situation is certainly not as dire as previous economic downturns and may provide investment opportunities.  


How much might property prices fall in 2023?   

As with most economic predictions, the experts don’t all agree on what will happen to house prices over the next 12 months. Some, like HSBC, feel reasonably optimistic and anticipate a 3% decrease. However, Nationwide believes the worst-case scenario (which they point out is unlikely) could be 30%, but 8-10% is more likely.    

Zoopla’s latest House Price Report predicts a 5% national decrease, while Savills adjusted their previous predictions to -10%. The latter does anticipate that prices will start to recover in 2024, with 6.2% growth over the next five years to 2027.   

The Chief Economist at RICS (Royal Institute of Chartered Surveyors), Simon Rubinsohn, shares this sentiment of a speedy recovery. He believes that with only a slight increase in unemployment likely, the “job-rich recession suggests the downturn in the housing market this time could be shallower compared to past experiences.”   

In previous recessions (most infamously the 1990s), mass unemployment led to many forced property sales, meaning supply far outstripped demand and prices crashed. However, as experts don’t expect unemployment to increase significantly, this scenario is unlikely to repeat, and the economy will recover more quickly.   

It’s important to remember that the average house prices have increased nearly 28% since March 2020, meaning a temporary 10% decrease isn’t necessarily a complete catastrophe for the majority of property owners.   


Opportunities for Property Investors   

While a slow-down in growth or decrease in actual values doesn’t, at first glance, appear to be a favourable situation for anyone investing in property, it can provide opportunities.   

The primary opportunity decreasing property prices offers is investment. Those of you with savings or who’ve released equity from other properties ready for purchasing new investments will now want to keep a close eye on the property pages (so to speak). While the housing market may slow as demand wanes, properties will still come to market, and with values expected to recover over the next five years, you’ll start making capital gains and rental income quickly.   

Although decreasing property prices may be suitable for some cash-rich first-time buyers, many will have to put their plans on hold while mortgage interest rates remain high, and 95% LTV mortgages are harder to come by. Still, people need places to live, so rental demand will increase, meaning fewer void periods and longer-term tenants. Furthermore, with increased tenant demand, rents will continue to rise, which, as property prices soften, means higher yields in the long run.  

To conclude: lower property prices, ideal for investment, and increasing rents. We appreciate lower buy to let mortgage interest rates would be the cherry on top in this situation, but when has the market ever provided all three at the same time!? Still, the mortgage market is settling, which given the mini-budget fall-out, is a huge relief. As rents increase, mortgage affordability will work more favourably for landlords, and profits will remain strong.  

Although talk of a “property market crash” is always unsettling, it’s essential to look at the broader economic situation. We’re under no illusions that 2023 will be easy-going, but it’s doubtful this downturn will be all doom and gloom for landlords, and as the money markets stabilise, pricing will settle down, and the demand for rental properties will continue to grow.   


What’s Next?   

If you are considering investment opportunities, find out what buy to let mortgage options are available to you ahead of time, so you’re in the best position to purchase or re-finance. Call our team on 0345 345 6788 or submit an enquiry to speak to an expert broker.