The UK property market had a whirlwind of a year in 2022, with the average price of property increasing almost every month. But then came the mini-budget session in September, which led to an almost instant increase in mortgage rates. This was followed by the rising rate of inflation and the increase in the base rate by the Bank of England, which made property in the UK even less affordable. While some experts predicted that the average price of property in the UK will drop by a whopping 10 per cent in 2023, others claimed that we will only see a 1 per cent drop in property prices in the coming year. This brings us to the question at hand, is the UK property market in danger? Estate agents in York talk about the future of the UK property market and take a closer look at the factors that could possibly trigger a crash.
Increased cost of living
Data from The Office for National Statistics showed that almost 93 per cent of all adults in the UK saw an increase in their cost of living in 2023. The annual inflation rate was recorded at 5.7 per cent in March 2023, but the government is attempting to bring down the rate of inflation to under 2 per cent. Due to the rising rate of inflation, the increase in the cost of living and the rise in utility bills, locals are left with minimal disposable income. With rising property prices, higher mortgage rates and an increased cost of living, potential buyers have to put a pause on their dreams of becoming homeowners. Due to this, buyer demand is reducing while tenant demand is increasing. That is one reason that the average rental in the UK has increased dramatically in the last few months. If the rate of inflation continues to rise and the cost of living increases, we could see a drop in property prices.
Higher mortgage rates
Just 12 months ago, the mortgage rates in the UK were affordable making housing affordable for everyone. In fact, government schemes like the mortgage guarantee scheme allowed low-income buyers to take out a mortgage with just a 5 per cent deposit. However, as of 2023, affordable mortgages have become almost extinct. This is due to the rising rate of inflation which currently sits at 4.25 per cent as of March 2023. Some experts believe that the Bank of England could increase the base rate to 4.5 per cent by the end of the year which means that the best available fixed-rate interest mortgage could cross 5.5 per cent in 2023. As the mortgage rates increase, buyer demand reduces because of a lack of affordability. A sudden fall in buyer demand could lead to a crash in property prices. This would be especially bad for homeowners who saw the value of their property grow tremendously during the property price boom, as they are at risk of losing their factnewsph gains.
Slower price growth
The average price of property in the UK fell by 2.3 per cent in November 2022, which was the start of the price drop. In January 2023, the average price of property in the UK dropped by 1 per cent. The latest data suggests that the price of property in the UK has started slowly falling month on month. While some experts believe that the average price of property will drop by 5 per cent in 2023, others believe that we could see a whopping 20 per cent drop in prices. With that being said, most market experts agree that while we will see a drop in property prices in the UK in 2023, we will most certainly not see a repeat of the 2008 housing crisis because the chances of prices dropping by 30 per cent are highly unlikely.
Another expert claimed that while the era of double-digit property price growth is definitely coming to an end, it is safe that property prices in the UK have reached their peak. So, while they do not expect property prices to rise further in 2023, they also do not expect the property market to crash.
Essentially, it is these 3 factors that could trigger a market crash, but at the moment it seems highly unlikely that property prices in the UK will drop by more than 5 per cent or 10 per cent in 2023.