What is happening in the property market right now?

In October 2022 I wrote an article outlining the turbulence in the mortgage market post the now-infamous mini-budget.

It foreshadowed the almost universal prediction that property prices would fall as a result. As interest rates went up, so did the cost of homeownership. 

At the start of June, Halifax reported that property prices have experienced their first annual fall in more than a decade.

Just a few days after that report, credit ratings agency Moody's said it expects property prices in Britain to fall 10 per cent over the next two years. It also warned that this could trigger a lengthy recession. There are tough times ahead. 

According to Ronald Reagan, “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” While his prose is rather lively, he has got a point. The current rate of Consumer Prices Index (CPI) inflation in the UK is 8.7%, which is considerably higher than the 2% target.  

The most effective blunt tool for managing inflation is interest rates, which have now increased to the highest rate, at 4.5%, since the financial crisis of 2008. These rates could rise higher still, which would further dampen the property market. 

According to money.co.uk, roughly 65 per cent of the UK population are homeowners, with slightly under half of them being in the enviable position of being mortgage free. Of those with mortgages, 1.4 million will have to remortgage in 2023—and all of them will face higher mortgage costs. And that’s on top of rising energy and food prices.

This could give rise to an increase in repossessions. Although it’s too early to know how many people this could affect, the most recent Ministry of Justice figures for England and Wales, which looked at the data between October and December 2022, showed mortgage repossessions up 134 per cent compared with the same period in 2021. The total number was still small at just 733. But this may be the tip of the iceberg—we’ll get a better picture as the year progresses. 

Uncertainty in the property market has also affected would-be homeowners. The British Social Attitudes survey found that, given a free choice, 86 per cent would prefer to buy their own home rather than rent. However, that’s a long-term trend, and few people want to buy a depreciating asset, especially as this could lead to the dreaded situation of being in negative equity, ie, your property is worth less than the outstanding mortgage. 

Interest rate rises have also been a cruel blow as many people looking to get onto the property ladder may no longer be able to afford the payments. So they won’t be able to take advantage of lower property prices. 

Property prices are likely to remain subdued for the foreseeable future. Most commentators are predicting that inflation will fall too. But with economic growth currently pretty much non-existent and historic and current inflation built into our now-inflated cost of living, affordability will remain an issue. 

First-time buyers are the lifeblood of the property market—let’s hope they catch a break towards the end of 2025. 

Read more: Sell your home quickly and for the best price

Read more: Switch your savings bank as interest rates skyrocket

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