UK Property Market: Look Back and 2023 Forecast

The UK property market experienced an eventful 12 months in 2022, with record breaking property prices, unprecedented demand as well as cuts to stamp duty. Ambitious tax cuts paired with a £60 billion energy relief plan caused financial uncertainty amongst the financial market and mortgage lenders, but overall the growth remained positive throughout the year.

Below we summarise what happened in 2022 and delve deep into the 2023 UK property market forecasts and what we have to look forward to over the next year.

What happened in the UK Property Market?

2022 kicked off with average house prices continuing to rise at pace, still being supported by low interest rates, a stamp duty holiday and strong demand from homebuyers outweighing supply.

Office for National Statistics data revealed that the average UK property price was £281,000 in April 2022, which was £31,000 higher than in April 2021. Further to this, Halifax data revealed that by August, property prices had increased by nearly 23% to a new record high of £293,992.

The South East of England recorded one of the biggest price increases nationally, up by £28,068 over the last 12 months to the end of November. This is partly due to various urban regeneration projects taking shape in the region, and the Elizabeth Line prompting homebuyers to consider up and coming towns such as Slough as a suitable location for buying property. In fact, the region is one of our top property hotspots for homebuyers.

In response to increasing pressures for homebuyers, the government moved quickly to stimulate demand in the property market by extending its 95% Mortgage Guarantee scheme – which was due to end in December – by a further year. This allowed first-time buyers and current homeowners looking to move to benefit from smaller deposits in the face of higher property prices and the cost-of-living crisis.

However, the pace of property price growth began to slow slightly from August onwards and, by November, prices were considerably steadier than previous months. Meanwhile, the cost-of-living crisis resulted in more caution in the UK property market. At the same time, new Chancellor Jeremy Hunt announced in November that stamp duty cuts in the mini budget would remain in place until 31st of March 2025, having recently increased the threshold from £125,000 to £250,000. This has helped to stimulate the homebuyer market as people look to take advantage of lower taxes and will continue to help maintain a high level of demand throughout 2023.

By the last quarter of the 2022, all regions had recorded slightly lower annual price growth, but still comparatively higher than the same period in 2021. December saw price growth steady to 2.8%, down from 4.4% from November, and this coincided with the Bank of England raising the base rate to 3.5%, in response to rising inflation levels. Because of this, mortgage offers dwindled momentarily, but quickly began to recover in the first quarter of 2023 as buyer demand remained high and uncertainty in the market eased.

The 2022 Property Market and Buyer Demand

Despite economic turbulence and the government mini-budgets impacting the property market, homebuyer demand remained strong. According to HRMC the number of house sales hit 114,200 in November, 12% higher compared to the same month in 2021, indicating optimism amongst homebuyers.

Data from OnTheMarket revealed that 74% of active buyers in the UK were confident that they would purchase a property within the next three months, with a recent Savills survey confirming that the pool of homebuyers is even more committed to purchasing property than they were when they were surveyed back in August 2022.

Following two years of rapid market growth and high transactional activity for the UK housing market, higher interest rates and the rising cost of living are expected to prompt a steadying of house price growth and transaction levels over the next twelve months.

With this in mind, what can we expect from the UK property market in 2023?

The Rental Market

Historically, private renters tend to pay a significantly higher percentage of their monthly income than both social renters and owner occupiers.

The UK rental market also experienced huge price increases in 2022 as a result of a lack of rental properties paired with consistently high demand from tenants, with many landlords off setting any increase in mortgage costs to tenants.

According to latest figures, the median average rent across the UK now sits at £971 per month; and further research revealed that the gap in renting costs and mortgage costs has widened considerably. According to Statistica, whilst homeowners with a mortgage paid approximately 21.7% of their income in 2022. In comparison, private renters were now paying the equivalent of 33.1% of their income to cover the cost of rent.

So, as renting becomes more expensive and property market forecasts continue to anticipate property price growth, those with a long-term outlook stand to gain more by getting onto the property ladder sooner rather than later.

UK Property market forecast for 2023

After several consecutive month-on-month record price increases, the property market began to steady throughout the last quarter of 2022, with many industry experts predicting this to continue well into 2023 and into 2024.

Whilst we saw a slight reduction in mortgage availability as a snap response to September’s mini-budget and resulting economic turbulence. We are now seeing mortgage rates beginning to fall again and an increase in mortgage products coming back onto the market. As such we expect demand for UK property to remain consistent over the coming year.

November’s Autumn Statement and the extension to stamp duty cuts adds a huge incentive for people to get onto the property ladder or move up the ladder sooner, stimulating the UK property market and demand.

Industry expert predictions understandably vary, but Savills forecast, Knight Frank and Zoopla all anticipate property price growth to remain steady in 2023 ahead of a boost in 2024 as wider economic factors, such as interest rates, stabilise and mortgage offers continue to recover.

London Property Market Forecast

Historically, London’s property market has always been strong, and predictions indicate that the property price cool down will be lower in London than in other parts of the UK.

Having experienced a lower property price growth than the rest of the UK throughout 2022, London’s prime property market looks set to outperform the mainstream market over the coming months due to its position as a relatively safe asset and its continued appeal to working professionals and the international homebuyer market. Chesterson’s predicts prices to rise by 5.7% in 2023 and a further 3.5% in 2024. The capital is also predicted to lead the recovery in 2024, with prices rebounding by up to 9%, compared to a smaller increase across other parts of the UK.

Savills echo this, predicting Prime Central London property will outperform the rest of the UK, with London property market as a whole set to prove its resilience with prices expected to rise by 13.5% between now and the end of 2027, presenting a fantastic opportunity for homebuyers and investors with a long-term outlook.

Overall, UK property market forecasts continue to look bright, with property price growth set to steady and buyer demand remaining strong despite external economic factors.

With mortgage rates beginning to fall and more mortgage offers coming back onto the table, schemes to help homebuyers get onto the property ladder and sustained homebuyer confidence; there is still plenty of opportunity for first-time buyers and home movers to buy property and reap the financial rewards in the years to come.

Similarly, with rental demand and prices following the same upward trajectory throughout 2022, property investors are presented with a prime opportunity to yield a healthy return on their investment. With rental demand reaching unprecedented levels due to a shortage of housing stock, 2023 is a great time to invest in buy-to-let property. In fact, according to a new survey, around 50.45% of investors are still looking to invest in property in the coming months due to the favourable rental market.

If you’re looking to expand your property portfolio, discover our best places to invest for 2023, here.