Property predictions: What will the next 12 months hold for the UK property market?

The UK property market has been exceptionally heated over the last 24 months, but many experts are predicting a significant cooling over the next year. Rising interest rates and inflation have the potential to have a significant impact on buyer affordability and demand, but will the current shortage of properties be enough to protect property prices?

These are some of the most common expert predictions for the next 12 months.

Rising interest rates and cost of living will slow house price growth and potentially lead to a fall in property values

The Bank of England has just implemented the largest interest rate rise in 27 years. The rise of 1.25% has been an attempt to stem a 40 year high in inflation, largely brought about by soaring food, fuel and utility costs.

Energy analysts Cornwall Insight are predicting that typical energy bills will be more than £4,000 a year by the start of 2023 and some analysts are suggesting that they could top £5,000 before the end of next year. This increased financial pressure is likely to have an impact on how many people are considering moving house and how many can afford to do so.

A shortage of properties on the market is currently helping to maintain property prices. Demand is outstripping supply, which is keeping the market buoyant. Estate agents are, however, reporting that the market is beginning to slow and shrink. An economic downturn or recession could change this balance in two ways; we could see more properties coming to market as homeowners sell up due to financial difficulty, or the increased cost of living could reduce the appetite for moving or buyers’ ability to secure mortgage finance. Either of these scenarios would result in smaller house price growth and potentially a decline in property prices.

Material and labour shortages will continue to be an issue and will impact both housebuilders and those wanting to renovate homes

Shortages in both materials and labour, alongside rising costs, have had a big impact on both housebuilders and homeowners. The pandemic, Brexit and the Russia-Ukraine war have all contributed to these shortages and cost rises, so it’s unlikely that these challenges will be resolved in the next 12 months.

Fall throughs will continue to be an issue as buyers struggle to secure mortgage finance

Currently, more than 30% of property sales will fall through before completion, and 30% of those failed sales are attributed to difficulty securing a mortgage. Steeply rising living costs and higher interest rates are likely to have a big impact on buyers’ affordability and borrowing capacity, impacting not only the number of buyers looking for homes, but also how much they can afford to pay for them.

Scott Squire, Property PX Group’s National Client Director, commented: “It’s clear that the property market is likely to face some very real challenges over the next 12 months. It has remained remarkably robust throughout the pandemic and beyond, largely thanks to the government’s stamp duty holiday and an imbalance between supply and demand. It looks, however, as if external factors will begin to rebalance the market in the coming months. Whether that rebalance will result in a slowing of growth or a price correction remains to be seen.”