Recent shocks, including the impact of the Covid-19 pandemic, Brexit, cost of living led inflation and 12 successive interest rate hikes in the UK have created challenges in the UK mortgage market, as I recently reported in January’s feature: Outlook brightening for buy-to-let mortgages.
And, as I was only recently reminded by my adult son, who has just embarked on a property purchase, the UK mortgage market is particularly precarious for first-time buyers who are trying to get on the ladder without assistance from Bank of Mum and Dad.
Having said that, even first-time buyers are now beginning to see the green shoot re-emergence of more competitive products, including 100 per cent loan to value (LTV) mortgages, which is something we have not seen for quite some while.
How do we know it’s a buyer’s market?
The key point today is that buyers are adjusting prices downwards, which is a key indicator that it is a buyer’s market. It’s also important to note that today’s sales transactions become tomorrow’s price comparables, so it is no surprise that the property outlook for 2023 remains subdued.
Knight Frank recently reported Prime London sales market made a strong start to 2023 and that in March 2023, average Prime Central London prices were just one per cent lower than three years ago when the pandemic first struck. Over the last 12 months, the movement has been even smaller.
Knight Frank further reported that the number of sales in the year was 1.8 per cent higher than the previous 12 months and that while new prospective buyers were up by three per cent year-on-year, the number of offers made was actually down by the same amount.
The very important change was “supply”, with the number of sales instructions 22 per cent higher than the previous 12 months. I believe this trend will continue in the short term, as domestic interest rates bite and landlords re-evaluate their strategies based on mortgage product availability and heightened EPC requirements.
As a consequence, they are forecasting around a three per cent decline in Prime Central London for this year and a four per cent drop in Prime Outer London.
What is the longer-term forecast and where are the opportunities?
Looking forward, market analysts are forecasting a return to modest but sustained single-digit growth from 2024 onwards and, here at Standard Chartered, we are seeing increased activity at the super-prime end of the market, where rarely available properties come to market.
The weakness of the pound has played an increasingly important factor as this attracts foreign investors, making high-end properties even more affordable for those investing with foreign currencies and we have seem particular activity amongst buyers from Asia, Africa and the Middle East, which are the Bank’s core markets.
With the Bank of England now expecting underlying UK GDP to grow, albeit by a very modest percentage in Q1 and Q2 2023, compared to previous expectations of negative growth, the forecast is that inflation will indeed become under control, interest UK base rates will peak and focus will then increasingly turn to the political arena.
What is the conclusion?
In summary, when the reverberations of the mini Budget have truly faded and we hear the drum beat of the next UK General Election, the consensus among the leading providers of Prime Central London research, e.g. Knight Frank and Savills, is that long-term property prices will steadily increase.
Until then, my view is it will firmly remain, a buyer’s market.
