By Many people will be happy to see the back of 2022. I’m sure we’d all struggle to think of other years that saw similar levels of political and economic turbulence.
The facts are well known to us all. Inflation soared into double digits.
The Bank of England hiked the base rate from 0.1% to 3.5%. Russia and Ukraine went to war. The UK had three different Prime Ministers, four Chancellors, and a change of monarch.
But despite all of this, 2022 was a strong year for the property market.
In the 12 months to October, the average UK house price rose by 12.6%, according to the latest data from the ONS.
What’s more, prices today are well above their pre-pandemic levels; between October 2019 and October 2022 the average house price increased from £232,919 to £296,422.
More up-to-date house price indices have shown that the curve on the graph is plateauing or, in some places, starting to come back down.
Speculation is rife on what prices will do this year – but when is it not?
House prices falling, but rents rising rapidly
Average house prices fell 1.5% between November and December, according to Halifax. Nationwide and Rightmove are showing similar trends.
It means 2023 has begun with bold predictions. Some are predicting 10% will be wiped off residential property prices this year.
But, crystal-ball gazing of this kind, whether positive or negative, must be taken with a pinch of salt. There are several questions that cannot be answered with any great certainly.
Most notably, will inflation fall significantly in the months to come?
If it does, the Bank of England’s interest rate hikes may stall, in turn ensuring borrowing remains more affordable for the masses.
It is always very difficult to forecast where prices will go.
What we can say with more certainty is that, while house prices are unlikely to increase in 2023, at least in the initial months, rents are on the rise.
Across the UK, the average rent price rose by 10.8% in 2022.
Overseas investment in UK property
British property investors were spooked by what they saw in the 2nd half of 2022.
Much was written about an ‘exodus’ of landlords from the BTL sector.
Meanwhile, we saw withdrawals from UK commercial property funds gather pace in the autumn.
This was all courtesy of the Government’s infamous mini-budget.
But, while some may have panicked at home, overseas investors saw opportunity. As the value of the pound plummeted, foreign nationals swooped in to bag some bargains.
Property investors from the US, Asia, and the UAE benefited from some incredible savings last year.
In 2023, we may see more overseas capital flow into UK property – especially at the top end of London’s prime market.
Specifically, this demand could be driven by the US, Europe, and the Middle East.
Lenders must be on hand to assist
However the market performs in the months to come, what is currently clear is the need for lenders to support brokers and borrowers.
With inflation still in double digits, saving money remains challenging.
Plus, the amount that buyers can borrow is decreasing as interest rates rise. Mortgages are getting too expensive for many. So, lenders must be on hand to assist.
For instance, proactive communication can help brokers, buyers, and investors understand how financial products are changing as a result of the wider economy.
They’ll need to know how this could affect their activity in the market.
Furthermore, certainty will become more and more crucial. Brokers and borrowers can make better informed plans with the support of lenders that can explain their products and terms clearly and transparently.
Starting the underwriting procedure early will protect borrowers from unpleasant surprises or unforeseen charges later on. This could lead to increasing buyer and investor confidence.
Finally, speed and adaptability are essential as always. More savvy lenders that are willing to take on challenging cases will come to the fore.
Especially if other lenders start to remove products again, or stop accepting new applications.
Here at MFS, we are making sure we can provide brokers and borrowers with products at speed, with flexibility and with a high level of certainty.
The property market will undoubtedly face plenty of challenges in 2023, but there is still a wealth of opportunities to be had for investors.
As such, finding the right lender, and the best financial option, will be key to success.
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