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A Live Look at What is Happening in the UK Property Market in July 2023

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The UK property market currently finds itself in an odd position. 

Following two years of prosperity, 2023 has (so far) seen skyrocketing mortgage rates and fluctuating projections. 

Historically, property investment has provided buyers with a reliable asset to weather the most devastating economic storms. 

For example, throughout the COVID-19 pandemic, UK house prices saw record highs – surpassing £290k in July 2022. At the same time, the stock market suffered its worst crash since 1987.

What has happened to the UK property market, and what will July 2023 bring? 

Property Prices Are Falling

According to RWinvest’s Guide to UK Property Investment, the average property price in December 2022 was around £294,329. 

Fast forward a few months, and according to the latest data, this average reached £286,489 in April – a drop of around 2.66%. 

This was not a huge surprise for investors, as prices had fallen consistently since the beginning of the year. 

In fact, many experts expect these decreases to continue throughout 2023, with some projections seeing falls of up to 10%. 

Of course, it’s understandable why this may not seem like the greatest news. Falling prices could indicate a lack of confidence in the market, resulting in a property losing value over the years.

However, it’s important to note that these drops are only expected for this year – the future is a different story. 

According to leading property experts Savills, property prices in the UK are set to see a 6.2% rise capital in capital appreciation – with specific areas, like the North West, expecting increases as high as 11.7%.  

Falling prices in 2023 could allow many buyers to get involved with property investment now, whilst the prices are lower before the market again surges in value further down the line. 

UK Rents are Rising

Since the beginning of the year, rental prices have risen to record levels across the UK. 

There has even been a month-on-month increase of up to 3% between April and May in certain regions.

On average, rents in the UK saw increases of around 1.2% in May, rising overall to around £1,213 PCM – a 1.18% increase compared to April. 

During this time, the average rent in London also reached around £2,039. This is one of the highest monthly rates ever recorded, with other regions, such as the North West, seeing similar rental growth. 

This follows an already high rent increase of 4.9% on the year in March, further showcasing this upward trend in UK rental figures.

According to RWinvest, Liverpool (one of the most consistently well-performing UK investment areas) saw an 8.5% annual change in rents in June compared to the year before, with average rent PCM rising to £764, and even further increases expected to follow.

There are multiple reasons why rental figures have increased so rapidly across the country over the last few months.

Most predominantly, this is a result of the following:

· High inflation, 

· High-interest rates, 

· Rising demand,

· Landlords pursuing alternative revenue streams. 

Some Homes May Take Longer to Sell

According to Hamptons, the average home in Britain took 49 days to sell in April.  

This is up from 28 days in 2022, but generally, sellers in 2023 have found a buyer relatively quickly. 

Around 23% of all homes on the market so far have sold within two weeks – reverting to normal levels pre-pandemic.  

This is especially true for homes selling for £1 million or above. 

As of April, a record 25 % were sold within 2 weeks – an increase of 23% compared to the previous year.

Some Homes Are Selling Below Asking Price

Buyers in 2023 are more persistent than ever when it comes to agreed pricing, according to Hometrack.

Most sellers, on average, have been forced to accept lower offers that are 3.8% below their original asking price – with even more taking larger discounts.

More than 42% have had to accept offers that are more than 5% below asking prices. 

This is the highest level recorded since 2018 when annual house price growth in the UK was just 1%. 

Mortgage Rates Rising to Combat Inflation

 The consistent house price decline has also led to an equally rapid rise in mortgage rates.

Last month, the base rate was increased from 4.5% to around 5%.

In July and beyond, mortgage rates are expected to remain at 5% or above. 

If these rates continue to rise, it could result in a damaging hit towards the market. 

Higher mortgage rates make it more complicated – and expensive – for investors to borrow money, which could lead to a slowdown in the market and sustained downward pressure on house price growth.

However, if money market expectations change, mortgage rates could start falling.

According to the latest analysis from Zoopla, mortgage rates increasing to 5% could see an 11% reduction in buying power, which could move to 20% if rates move to 6%.

This would not directly impact house prices, as lower sales volume and the hit to buying power from borrowing costs rising from 2% to 4% earlier in the year have masked the impact to some degree.

Investors can offset this reduced buying power by injecting more equity into their purchases or taking on longer mortgages.  

Limited Housing Supply to Match Demand

The balance between supply and demand in the UK property investment market has been off for some time. 

Essentially, there is a considerable between supply and demand for housing.

The number of people currently looking for new homes to rent has risen over 23% since 2022, with general rental enquiries now 46% above the national 5-year average. The current housing stock is roughly 38% below the 5-year average. 

This disparity has led to an increase in the number of deals being agreed upon before viewings have even taken place, as well as a growing number of scenarios in which multiple potential tenants are forced to fight it out in order to secure a place to live. 

This continued imbalance, as well as the overall rise in rents, is fuelled predominantly by a reluctance in first-time buyers to enter the market, which stems from several factors: including the ongoing cost of living crisis and fluctuating mortgage rates. 

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