Property Market Update | August 2023
The UK property market has been showing remarkable resilience and adaptability in the past year, as the economy overcame the challenges of the pandemic, the cost of living crisis, and the interest rate hikes. How has this affected house prices and buyer behaviour? What are the opportunities for the future? Here are some key points to consider:
House prices are stabilising, not crashing.
According to the latest data from Halifax, the average house price in the UK was £248,000 in August 2023, down 2.4% from a year ago and 0.3% from July 2023. This is the fourth consecutive month of decline, but the drop is relatively modest compared to the post-lockdown boom that saw prices rise by 14.2% in July 2022. The average house price is still £45,000 higher than it was before the pandemic in early 2020.
Mortgage rates are creating a more balanced and sustainable market.
The Bank of England has raised the base rate from 1.25% to 5.25% since December 2021, in an attempt to curb inflation and cool down the economy. This has increased the cost of borrowing for homebuyers, especially those with high loan-to-value ratios. The interest rate on a two-year fixed rate mortgage is now close to 7%, more than four percentage points higher than it was a year ago. This has reduced the demand for larger and more expensive properties, and made buyers more prudent and realistic.
Buyers are opting for smaller and cheaper homes that suit their needs and budgets.
The shift in buyer preferences is reflected in the data from Nationwide, which shows that prices for flats have risen by 5% in the past year, while prices for detached houses have fallen by 5%. First-time buyers, who make up a large proportion of the market, are also switching to smaller homes, as they face easier lending criteria and lower deposit requirements. According to Zoopla, the average first-time buyer property size has shrunk by 4% since 2019.
Sellers are adjusting their expectations and offering more attractive prices.
With fewer buyers in the market and more properties available for sale, sellers are facing more competition and longer selling times. According to Rightmove, the average time to sell a property in August 2023 was 67 days, up from 51 days a year ago. Sellers are also accepting more reasonable offers, as buyers are less willing to pay over the odds. According to Zoopla, the average discount to asking price in August 2023 was 4%, up from 2.5% a year ago.
The outlook for the property market is optimistic and depends on various factors.
The future direction of house prices will depend on how the economy performs, how inflation evolves, how interest rates change, how consumer confidence recovers, and how supply and demand balance out. Some experts predict that house prices will stabilise or even rise slightly in 2023, as unemployment remains low, wage growth picks up, and mortgage availability improves. Lloyds and Halifax expect house prices to rise by 2% in 2023, while Nationwide and Zoopla are predicting rises of 1%. Others are more cautious and expect house prices to fall slightly in 2023, but at a slower pace than in 2022.
The UK property market is going through a period of transition after a strong recovery from the pandemic shock. Buyers and sellers need to be flexible and opportunistic in their expectations and decisions, as the market conditions vary across regions and property types. The property market is not crashing, but it is adjusting.
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