Despite the economic headwinds faced by the UK, including rising interest rates and the increased cost of living, the housing market has shown remarkable resilience. According to JLL, although there is an expected decline in house prices, the downturn is projected to be less severe than the one experienced during the 2008 global financial crisis.
Predicted House Price Trends
JLL forecasts a 6 percent decline in property prices across Britain by the end of 2023, followed by a further 3 percent decrease in 2024. These anticipated reductions in house prices suggest that the market is adjusting to the current economic climate but not collapsing under it. Importantly, the firm anticipates that property prices will reach their lowest point in 2024 before starting to climb once more in 2025.
Factors Underpinning Market Resilience
One of the reasons for the housing market’s stability is the introduction of more stringent lending rules since the 2008 crisis. These regulations have helped to ensure that homeowners and buyers have higher levels of equity, shielding the market from significant distress despite the pressures it faces.
Mortgage Approvals and Interest Rates
Recent data from the Bank of England indicates a decrease in mortgage approvals, suggesting a cooling off in future borrowing. This drop is reflective of the higher mortgage rates that households are grappling with. Nonetheless, JLL predicts that fixed mortgage rates may become more affordable as the likelihood of further rate increases diminishes. However, rates are expected to remain above what many homeowners have historically been accustomed to for some time.
The Persistent Issue of Housing Supply
A recurring theme in the UK property market is the shortage of homes for sale, which is set to continue being a problem. JLL projects a cumulative shortfall of 720,000 homes between 2023 and 2028. This undersupply is a critical factor contributing to the challenges in the housing market, particularly in terms of affordability and availability.
Rental Market Dynamics
While house prices are forecasted to fall, rental costs are on an upward trajectory. The mismatch between the supply of rental properties and tenant demand has already led to significant rental growth in 2023, with JLL predicting rental costs to increase by 5 percent in 2024. This rise in rents is likely to surpass wage growth, exacerbating affordability issues for tenants.
London’s rental market is expected to experience even higher growth due to intensified competition and sales market affordability challenges. However, from 2025, the anticipated lower mortgage rates could encourage some tenants to transition to homeownership, potentially easing the pressure on the rental market.
Current Market Snapshot
In a surprising twist, October figures from Nationwide showed a 0.9 percent rise in house prices, although prices were still 3.3 percent lower than the previous year. The average home price saw a slight increase, with Nationwide cautioning that the market would likely remain subdued.
Compared to the aftermath of the 2007 peak, the current decline in house prices is less steep. Thirteen months after the 2022 summer peak, prices have fallen by 5.3 percent, as opposed to the more than 13 percent drop experienced post-2007.
Looking Ahead
The UK housing market is navigating through a period of adjustment. While prices are set to decrease in the short term, the market is expected to bounce back, with growth predicted to resume in 2025. For potential investors, this presents a nuanced picture: the coming years may offer opportunities for investment at lower entry points, with the anticipation of future growth.
Marcus Dixon, a director of UK residential research at JLL, highlights the importance of addressing the structural issues within the housing market to increase supply and improve affordability. For individuals considering property investment, keeping an eye on these developments will be key in making strategic investment choices.