Property Prices in 2023 a Story of Resilience

Having celebrated the New Year, we take a look at UK property prices in 2023 which had challenges and opportunities for homeowners, buyers, and property developers alike.

As we look into the dynamics of the housing market, it is clear that 2023 started on a cautious note, with property prices experiencing a dip in the initial months.  However, the latter part of the year was more positive and suggested a recovery in the housing sector, signalling a positive shift in the market dynamics.

Early-Year Decline

In the first half of 2023, we saw a rapid decline in UK property prices, as we see the highest level of discounts on house prices in the last four years.  There are many factors contributing to this downturn, including economic uncertainties, rising inflation, the persistent cost of living crisis, and the lingering effects of the global pandemic.

In London, traditionally one of the most robust property markets, the decline was particularly pronounced, with the lowest 12-month house price percentage change at – 0.6%.

Recovery of Property Prices in 2023

However, the latter part of 2023 saw a slight rebound in property prices across the UK.  Many reports are highlighting a recovery in the housing market, with prices slowly rising month on month.  Nationwide reported a 0.2% month-on-month increase in house prices in November; while this growth remains weak, it was the strongest since February 2023. Similarly, Halifax Mortgages reported an increase in UK house prices for the second month in a row in November.

While these increases may not fully offset the earlier declines, there are signs of a positive trajectory in the housing market that aligns with growing confidence among buyers and investors.

Affordability and Its Impact on the Housing Market

One crucial aspect influencing the property market is the changing landscape of affordability.  The cost of mortgages, a pivotal factor in the decision-making process for many prospective first-time homeowners, has experienced fluctuations throughout the year.  The early-year decline in property prices prompted a reduction in mortgage rates, making housing more affordable for those entering the market.  As of this month, average mortgage rates have now fallen for 19 consecutive weeks, with the average 5-year fixed mortgage rate in December being 5.11%, compared to 6.11% in July.

Director of Halifax Mortgages, Kim Kinnaird, said, “With mortgage rates starting to ease slightly, this may be leading to increased buyer confidence, seeing people more inclined to push ahead with their home purchases.”

However, it’s essential to consider the broader economic factors impacting affordability.  The ongoing cost of living crisis and rise in energy costs has been a major concern for households, potentially affecting discretionary income available for mortgage payments.

The unemployment crisis has also been impacting affordability, which in turn has put a downward pressure on the housing market.  With analysts predicting a 0.5% increase in unemployment to 4.8% in June 2024, this is likely to have lasting effects on house prices.

Striking a balance between mortgage affordability and the overall cost of living will be crucial in sustaining the positive momentum in the housing market.

Projected Outlook for 2024

There is some level of cautious optimism for 2024 permeating the property market.  Experts indicate that the recovery we saw in the later months of 2023 is expected to continue, with forecasts that house prices will only drop by 1.5% in 2024.

Nationwide’s chief economist, Robert Gardner, predicts that house prices will see “low single-digit decline or remain broadly flat” in the coming year, with central Londond seeing even greater growth with strong international demand.

Another key factor contributing to this positive outlook is the expected change in the Bank of England (BoE) base rate.  While it reached its peak in recent months, the Bank has left interest rates at 5.25% for a third consecutive time, with many predictions that the base rate is set to decrease in 2024.

This anticipated decline bodes well for mortgage rates, as it further enhances affordability for potential buyers and can aid in stimulating demand in the housing sector.

As we reflect on the UK property market in 2023, it is clear that the housing market has weathered uncertainties and is starting to see positive signs of market recovery.  For property developers, the coming year holds the promise of a more favourable and prosperous real estate landscape.

If you would like to learn more about how lender interest rates may go in 2024, then please contact us on 0207 096 2003 or here.  In the meantime, we wish you a very Happy New Year!

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