Rents hit record high as demand outstrips supply – so where is the precited housing market crash?
As the UK housing market apprehensively went into Q1 of 2023, confidence in the market was at an all-time low. New data released from HMRC showed that the number of UK house sales fell by 3% month-on-month in December amid signs that rising mortgage rates are impacting transactions, with an estimated 101,290 being sold in the month. This continued fall in market activity has contributed to a ripple effect amongst housing specialists calling for the eventual collapse of the UK’s housing market. Despite this, housing expert David Hannah, Group Chairman at Cornerstone Tax, has maintained confidence in the UK housing market being one of the most stable markets in the world. Hannah believes that attractive cities such as London will not see a slowdown in activity. Serving as testament to this, recent figures show that demand is currently outstripping supply, and as a result, rents have hit a record high in the capital.
Britain’s political and economic woes in Q4 of 2022 have consequently caused low confidence levels across the property market, with some specialists predicting a crash. Figures released by the Office of National Statistics reported that UK house prices experienced their first monthly fall in more than a year, reflecting the effect of rising borrowing costs on the residential property market. Coupled with the continued hiking of interest on mortgage repayments – those looking to buy property or current homeowners are now looking at renting as a cheaper alternative. As a consequence of this, there has been a considerable surge in demand for rental properties, which has now pushed immense pressures on a market experiencing low stock and record high rent prices – Rightmove is predicting average asking rents will continue to rise by an estimated 5% this year unless there is a significant increase in the number of available homes to let.
Despite analysts’ forecasts for prices within Britain’s housing market to crash as much as 20%, Hannah expects low/mid-single digit growth between 5-8% in 2023. This growth will be primarily led by increased demand for rental properties in attractive cities such as London, where the average asking rent has reached a record at £2,480 per month. In contrast, for inner London, average rents surpassed £3,000 for the first time. The impact of foreign investors is also set to maintain demand due to a decline in the price of Sterling as the housing market became 10% cheaper- meaning that even if domestic activity continues to fall, the market will remain buoyant.
David Hannah, Group Chairman at Cornerstone Tax, explains:
“In early 2023, we will see slow demand. Only those people forced to sell will see a slight fall in prices; however, over the whole of 2023, I expect to see low to mid to single-digit growth over the UK property market- between 5-8%. Despite the negative headlines that we have been seeing, there is an underlying pressure on the market, and that is leading to upward pressure on prices.
“We now have a growing number of people that want to move to the UK. The first is the overseas investor who regards UK property as a haven for their money because the country they principally live in is not economically or politically safe. The second are those who want to become second homeowners. The third and final group is those who want to leave their country of birth and are in need of a home. All of these factors over the course of the next 12 months, I believe, are what will support the UK market and leave it with a modest and steady rate of growth.
“There will be no continuous retreat of foreign investment out of London and the rest of the UK. With sterling remaining relatively cheap, properties in London and other major UK cities will still be seen as sought-after investments. The UK property market has tended to be more stable than any other global market in property.”
