Matthew Henderson
Associate Director, Residential Research
Today, Strutt & Parker announces its 2023 house price forecast which reveals national property prices will either remain static or in a worst case scenario fall by up to 5%, following 14 consecutive quarters of growth.
The outlook for Prime Central London is marginally more optimistic, with growth of up to 3% possible, and a downside risk of values declining by up to -3%.
The slowdown in growth is attributed to the continued economic headwinds facing the residential property market, namely the increased cost of borrowing. However, the property consultancy reports that transaction volumes for the third quarter of 2022 are the highest since Q3 2021, and with volumes and prices 11% and 28% higher respectively than the pre-Covid average*, the market is cushioned for marginal downward corrections.
Matt Henderson, Associate Director Residential Research at Strutt & Parker comments, “The housing market can be compared to a cruise liner; in that it does not turn subtly yet it does so incredibly slowly. The past two months have been dogged by negative rhetoric in the housing market, however Q3 has been remarkably positive but much is still to play out. Recent sales volumes show strong market activity, although the bulk of these transactions were reliant on mortgages secured pre the ‘mini-budget’ and the subsequent mortgage rate hikes. This level of transactions is unlikely to be sustained in the short term. As such, we can expect negative pressure on house prices as the market responds to increased rates and living costs.”
The property consultancy has also revised its house price forecasts for the remainder of this year. The Prime Central London forecast for 2022 has been adjusted to growth of between 0% and 2%, from a previous forecast of between 2% and 5% at the end of Q2. The UK-wide forecast for 2022 has been revised to between 5% and 8% growth, down from between 7% and 10%.
Kate Eales, head of regional agency at Strutt & Parker says, “There’s no doubt the mini-budget unsettled the housing market, especially for in-progress sales. We saw transactions that were already fragile, dislodged entirely, while on the other hand many buyers who still had mortgage offers with relatively attractive rates on the table worked incredibly hard to secure their purchase.
“Looking ahead to 2023, those looking to sell can take some reassurance from three key factors. First, while values are likely to soften, this adjustment is coming off the back of solid quarterly growth for over nearly three years. Secondly, regardless of economic headwinds, there will always be buyers who need to move, and they will be looking to transact in the coming 12-months. Lastly, we remain in a very supply constrained market, where even if buyer demand falls, it will still outweigh the number of available homes.”
Louis Harding, head of London agency at Strutt & Parker says, “In Prime Central London, the main barriers to the market for the next six months will be uncertainty and sentiment, rather than borrowing concerns. Multi-million pound buyers will adapt according to what they can borrow, and the fall-out of rate rises is unlikely to be as big as anticipated thanks to opportunistic buyers adding to the pace of the market by purchasing in dollars or cash. Despite this, buyers at all levels are more conscious of pricing which is by no means insurmountable, however, flexibility and sensible expectations remain key for motivated sellers to secure a successful outcome.”
Prime Central London lettings forecasts have been maintained at growth of between 10% and 15% for the remainder of the year, with 2023 anticipated to see growth at the same rate. Year on year growth to Q3 (13.6%) was over double that of the rate recorded in Q4 2021, however despite quarterly transaction growth of 41% to Q3 2022, year on year growth was -45% signalling a continued undersupply of stock to meet tenant demand.
Harding continues, “The lettings market continues to experience supply shortages leaving competing tenants with little choice than to bid for available properties. We forecast continued growth in 2023 for PCL lettings, but it is unlikely this level of growth can be sustained in the longer term.”
Read our latest Residential Report here.