UK Housing Market 5-Year Forecast

Despite the UK facing a volatile housing market heading into 2023, the forecast for the next 5 years looks to have more promising signs.

property market

Finbri, a property bridging finance broker, explains “The housing forecast is uncertain but there are some indicators that point towards significant changes in 2023. Many people cannot enter the property market due to the lack of mortgage products and high-interest rates, which will further decrease demand in the market in the next year. House prices are set to fall sharply in 2023% with the average price expected to drop by 10%. However, It has been suggested that house prices could increase by 5.5% in 2027, and that the property market is set to bounce back from mid-2024.”

What caused the mortgage market collapse?

Following the “mini-budget” issued by former Chancellor, Kwasi Kwarteng on September 23, that was subsequently reversed, that notably slashed several levies, most notably the Stamp Duty Land Tax (SDLT) in England and Northern Ireland, the collapse of the mortgage market has escalated.

The property market in the UK has been the subject of speculation – interest rates increased further due to rising inflation. This has ultimately had an effect on fixed-rate mortgages’ underlying expenses, which is also the reason some lenders have raised their prices or removed products altogether – with around 400,000 homeowners expected to struggle to meet repayments.

What is forecasted for 2023?

It has become increasingly difficult to determine what will happen with the housing market in 2023, with predictions of house price decreases ranging from 5% to 15%. Due to a combination of factors including high unemployment, a weaker economy and rising mortgage rates.

UK property investment

House prices to fall

According to the Office for Budget Responsibility estimate, between Q4 of 2022 and Q3 of 2024, house prices are expected to decline by 9%. The UK is currently going through economic turbulence, which is directly affecting the real estate market. The typical cost of a home was £273,751 in August and £263,788 in November.

Rental market demand is set to increase

Demand for rental properties is expected to rise over the next five years, particularly in urban areas. Increasing living costs, reduced availability of mortgage finance, and increasing property prices are likely to contribute to rental demand growth.

Repossessed property increase

The number of repossessed properties will likely increase in 2023 due to increasing mortgage defaults, partly due to rising interest rates and the continuing cost-of-living crisis.

Investors looking to capitalise

Investors have been able to capitalise on the increasing property values, ongoing lack of competition, and rising rental demand thanks to the present mortgage instability. Finbri surveyed more than 1,000 property investors who, despite the uncertainties surrounding mortgages, are looking to invest in 2023. 50.45% of property investors think they will invest in 2023. 33.37% don’t currently think they’ll invest, and 16.18% don’t know. Investors with 5 or more properties are more likely to invest next year, with 67.92% stating they intend to invest in 2023.

investment property

What can be expected in the next 5 years?

Although the forecast for 2023 looks bleak, the market is expected to recover over the next 5 years. Savills predicts that values will start to recover and that the average UK house price will increase by +6% in nominal terms over the next five years, presuming that interest rates gradually begin to decline again around the middle of 2024.

First-time buyers and buy-to-let investors feel the brunt of heightened affordability pressures next year when the Bank base rate is anticipated to peak at 4.0%. When identifying the key aspects of the data collected by Savills, these are the following key assumptions:

  • House price growth is expected to drop by 10% in 2023, with other predictions that this could drop further. Market recovery is expected to begin in 2024, with house prices expected to increase by 1% in 2024 and further increase year on year.
  • Rental growth is expected to continue increasing over the next 5 years with a spike in 2023, following the cost-of-living crisis and ongoing mortgage crisis.
  • Bank rates are forecasted to reach a high of 4% after previously increasing by 0.75% to 3% in November 2022. However, despite the dire outlook expected for 2023 – the outlook for the following 4 years looks promising.
2023 forecast 2024 forecast 2025 forecast 2026 forecast 2027 forecast
UK House Price Growth -10% +1% +3.5% +7% +5.5%
Rental Growth  +6.5% +4.0% +2.0% +2.4% +2.3%
GDP growth  -0.5% +1.8% +2.7% +2.1% +1.6%
Unemployment 4.6% 4.5% 4.1% 3.9% 3.8%
Bank Base Rate 4.0% 3.5% 2.5% 1.75% 1.75%

Source: Savills research, *Oxford Economics

What happened after the 2008 recession, and how long did the market take to recover?

The UK economy experienced a sharp downturn after the 2008 recession, with a 7.2% decline in GDP from the start of 2008 to the end of 2009. By 2013, the economy had returned to its pre-recession level and continued to grow until 2016 when it experienced a slowdown due to the Brexit vote. Since then the UK has seen successive quarters of positive growth, culminating in an overall 4% expansion by 2018.

Overall, it took around six years for the UK economy to fully recover from the 2008 recession and return to its pre-recession level. Despite some ups and downs, the UK economy has seen positive growth for the last seven years, suggesting a foundation for further growth in the coming years.

Final thoughts

The UK property market is a complex, ever-changing landscape and trying to predict it with any degree of accuracy is fool-hardy. The property market throughout the last 50 years however has proved one thing time and time again, property assets benefit from significant capital increases over the long term. What’s also true is that as the UK lurches from one significant crisis to another, property investment of late requires a constitution stronger than ever.