Property prices

House prices sharply increased during the pandemic as buyers took advantage of the stamp duty break and extra savings during lockdown, but the market has turned in recent months, according to March’s figures from the ONS. These figures show a cooling of property prices throughout the country, most notably in Scotland where house prices are only 1% above where they were 12 months ago,

House prices in the UK rose by 5.5% in the 12 months to February 2023, down from 6.5% in January 2023.

The ONS said the average UK home had sold for £288,000 in February 2023 which is £16,000 higher than 12 months ago, but £5,000 below the recent peak in November 2022. Property prices increased the most in West Midlands in England (8.6%) while London had the lowest rise (2.9%).

Meanwhile house prices as measured by the Nationwide Building Society were down 3.1% in the year to March. This is the biggest annual fall since 2009.

Robert Gardner, Nationwide’s chief economist, said: “It will be hard for the market to regain much momentum in the near term since consumer confidence remains weak and household budgets remain under pressure from high inflation.”

But figures from Halifax and Rightmove are more upbeat, the lenders said house prices had gone up 1.6% and 1.2% respectively.

Will house prices crash?

Across Britain houses are getting listed at prices far below what they would have sold for during the pandemic. After the controversial September mini budget many lenders withdrew deals and increased rates, pushing up the cost of borrowing. First-time buyers, buy-to-let investors and homeowners are all feeling the strain of high mortgage rates and the cost-of-living crisis.  With interest rates continuing to climb to bring down double-digits inflation, are we set for a housing crash?

What do the experts say?  Rightmove is forecasting prices will drop by 2% in 2023.  The property website expects the time it takes to sell a house increasing to a more “normal” housing market of around 60 days. House price growth has been fuelled by the imbalance in supply and demand with many more people looking to move than there were homes for sell between 2020 and 2022.

Rightmove’s property expert Tim Bannister said: “After two and a half years of frenetic activity, it’s easy to forget that having multiple bidders immediately lining up to buy your home was the exception rather than the norm in pre-pandemic years and there will be a period of re-adjustment for home movers as properties take longer to find the right buyer.”

Lloyds Bank, the UK’s largest lender, is more pessimistic, forecasting house prices to fall by 7% this year and sink a further 1% in 2024 before starting to recover slowly from 2025.  Halifax forecasts a drop of 5%.

No one has predicted anything as severe as the 16% fall after the 2008 financial crash. Demand still outstrips supply in many parts of the UK. Mortgage rates are coming down from their peak after the mini-budget, encouraging buyers to return to the market. Experts think this is more likely to be a correction rather than a crash.

Rental market

Rents have increased over the past couple of years because far too many people are chasing far too few properties. According to the latest data from the ONS the rent paid by tenants in the UK increased by an average 4.9% in the 12 months to March.

In England, private rental prices rose by an average 4.6% in compared to 4.4% in Wales and 5.1% in Scotland.

Within England, the East Midlands saw the highest annual hike in rental prices, while the South-East saw the lowest. In London, private rent prices rose by 4.8% above the English average and its highest annual rate since 2012.

The Association of Residential Lettings Agents state in their March 2023 Housing Insight Report that “the issue of undersupply remains with no movement in the number of properties available to rent.”

This translates to an average of 10 prospective tenants registering per available property. Most agents report rents increasing month-on-month in March.

Meanwhile the Royal Institution of Chartered Surveyors (RICS) reported in their March 2023 UK Residential Market survey that tenant demand reached a five-month high. Strong demand is being seen across the country. At the same time, there continue to be fewer new lets available.

In line with this demand/supply imbalance, RICs expects to see an increase in rents in all parts of the UK over the next 12 months.

Buy-to-let investors will face higher capital gains tax and council tax charges from April which will increase costs. As a result, many could sell their property, further reducing supply of rentals.

Is now a good time to buy or sell?

It is difficult to say whether now is a good time to buy or sell. Some sellers may postpone putting their homes on the market until prices start to recover. Other people, especially first-time buyers, will be hoping for house prices to fall further to make it more affordable to buy. With rents increasing, it might make sense to buy now if you are a first-time buyer and confident you can keep up with your mortgage repayments, especially if you plan to stay put for a few years. Buying a property means you would be paying of your own mortgage instead of a landlord’s.

However, interest rates which are already at their highest rate since 2008, could continue to rise as the Bank of England grapples with inflation. Rising mortgage costs could cancel out any money you might save on the purchase price of a house. Another issue to consider is what would happen if there was a housing price crash. Could that lead to negative equity - when the value of your home is less than the amount still left to pay on your mortgage.

Given these uncertainties, it’s important to do your own research and take expert advice. If you’re looking to sell, you should consider the current state of the market, the value of your property, and your own financial goals and needs. And if you want to buy, carefully consider your income, outgoings, long-term goals and the potential risks of buying a property in a volatile market.