Is the UK property market still the best place to invest?


2022 was an interesting year for UK property and came with many challenges. A cost of living crisis and rising interest rates caused many to question whether moving home was the right idea, and house price growth slowed accordingly.

As we begin 2023, it is a good time to ask: is the UK property market is still the best place to invest? Overall, there are potential issues, but the outlook is positive and it seems that better times are not far away.

The big news in UK property is that house price growth slowed and possibly even stalled at the end of 2022. Data from Zoopla in January 2023 shows that most regions experienced small declines in house price value at the end of last year, and overall house price growth was just 6.5% in 2022 as a whole.

This was understandably something of a shock after years of high percentage growth, it does not indicate the doom and gloom that you might think.

While it is true that demand fell by as much as 50% towards the end of last year – as per the Zoopla research – it must be borne in mind that it was falling from historically high levels. Indeed, it has already recovered substantially this year and now sits at just 23% below the five-year average.

This may sound negative, but in reality it is in line with the pre-pandemic average and is 10% higher than demand in 2019.
Richard Donnell, executive director of research at Zoopla, commented on this, saying: “It’s going to be a slow start to 2023 but we expect demand to pick up in the coming months as the economic outlook becomes clearer and mortgage rates settle around 4% to 4.5%”.

The fact is that the pandemic years 2020-2022 were exceptional and should not be viewed as the norm. This is also shown by the average house price growth of 23% over that time period. This means that even the slight in house prices puts property prices in the UK 19.4% above the pre-pandemic record according to Halifax data.

To illustrate this point further, Andrew Asaam, Homes Director at Halifax, says: “We expect that UK house prices will decrease by around 8% [in 2023]. To put this into perspective, such a fall would place the average property price back at roughly the level it was in April 2021, reversing only some of the gains made during the pandemic. There is still uncertainty around this forecast, with the trajectory for Base Rate (now expected to peak at 4%) and unemployment levels key to determining any future changes.”
So, does the future look brighter for UK property? The simple answer is yes. The aforementioned interest rate peak of 4% – a level confirmed by the Bank of England at the beginning of February – is likely to see increased confidence return to the market as mortgage rates fall. A reduction from the 2022 high of 6.65% to 5.79% has already caused a rise in demand of 55% this year according to Rightmove statistics.

Tim Bannister, of Rightmove, said: “Activity has bounced back after Christmas and agents will now be busy trying to match the likely revised expectations of buyers and sellers as we move towards the important spring season.

“We expect that the full effect of affordability constraints and last year’s mortgage rate rises will hold back some segments of the market in the first half of the year, but our leading market indicators may start to identify some green shoots of growth that will go on to strengthen in the second half of 2023.”

In fact, the strengthening of the UK market is set to go on far beyond the end of 2023. Property investment is a long-term prospect, and the latest forecasts from Savills show this.

The agency believes that the average house price in the UK will return to its peak by 2026 and be setting new records again by 2027 – equivalent to growth of 18% over the next four years. Some regions such as the North West (22.1%) and the West Midlands (19.7%) are likely to perform even better, making this a good time to invest in cities like Manchester and Birmingham.

The other side of investing in UK property is rental income. In this area, there is nothing but good news for investors. HomeLet reported in January 2023 that the average rent rose by 10.8% in the UK across 2022 thanks to a hugely increased level of demand.

The same forces which put people off buying – higher mortgage rates, cost of living crisis – kept more people than ever in the rental market and pushed prices up. All indications are that this will continue not just in 2023, but for years to come.

Recent data from the Royal Institution of Chartered Surveyors showed that rents could rise by as much as 15% again in 2023 on top of previous gains. Even more conservative estimates from Savills of 6.5% rental growth in 2023 and 18.3% by the end of 2027 offer great news for investors looking to maximise rental income in the short and long term.

So, with the above in mind, should you invest in UK property in 2023? There is no hiding from the short-term uncertainty in the market, and it is understandable that the current conditions may lead to some caution. For example, predictions of lower mortgage rates opening up the market again are well and good, but they have not happened yet. Likewise, most analysis thinks it likely that interest rates will peak at 4%, but further developments in the cost of living crisis mean that we cannot say for certain that this will be the case – and this could have more unpredictable impact on house price and rental growth.

However, indications are that 2023 could be a good year for property investors. When asking whether the UK property market is still the best place to invest, the strength of the rental market should be a big indication that the answer is yes.
Similarly, the long-term nature of property investment means that the extremely positive future forecasts must also be taken into account. House price growth looks set to return sooner than expected, and the record highs set during the pandemic will be exceeded.

This is particularly true for those investing in off-plan property which is still in construction and set to complete in the future. This tried and tested investment strategy arguably offers even more value than ever before in these economic circumstances.
By purchasing off-plan now, you can secure a property at the lowest price it has been in years, and then take advantage of high future growth rates to maximise your capital appreciation. At the same time you will avoid the higher borrowing costs now and be able to complete on your purchase in the future when they have fallen once again. Buying off-plan has the potential to be the best of both worlds, and using this strategy gives you the best chance of success in the future.

Want to learn more about the UK property market and the best places to invest? Get in touch with our team today by clicking here.

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