2023 will be very different; with inflation driving higher prices across the board, labour shortages, wage inflation and higher interest rates. The stage is set for things to change. Initially, house prices may not be unduly affected with the supply remaining chronically short. The lack of supply will not deter buyers keen to relocate in the right areas with outside space. The ratio of demand to supply is past its peak, but is still high. The first half of 2023 could see a steadier market with prices continuing to adjust. Confidence and household finances will be challenged, and the expiry of fixed rate mortgage Terms will affect the ability to borrow In the longer term. Affordability has become a real issue which will force extended loan-to-value borrowing for first time buyers, with stringent stress tests for borrowing. With an ageing housing stock and borrowers needing higher LTV loans, the current and future value of property will become more dependant upon valuation procedures.
The outcome is likely to be a significantly cooler market than hitherto. The main driver of rising house prices since lockdown ended- wealthy home movers not behoven to lenders and willing to pay above guide prices- is no longer a factor. Much of the slowdown will be driven by a lower demand from buyers, which fell to 2% above the five year average by mid-december. If the market becomes dependent on buyers who take on substantial mortgages, then all eyes will focus on the bank rate, with expectations of another rise early in the new year, probably contingent upon rising inflation.
There have been wide variations of opinion from commentators on the future of the residential market, but the market will weather the storm. For instance, Savills research at the top end of the market suggests that over 80% of their applicant's budgets are not affected by cost of living. This is not the case with first time buyers, whose ability to borrow will impact on first time vendors. If, as some forecasts suggest, the market is on the brink of recession, the sale of Long Leasehold purpose built and converted flats will be the first to fall.
Energy Performance Ratings will also have an increasing impact on buyer's choice of properties, with forthcoming prohibitions on the sale of new gas fired boilers, and the far higher costs of installing heat pump systems with improved insulation throughout the older building stock. Nevertheless, energy costs are likely to adjust with reduction in the wholesale price of utilities.