UK Property Market Report: January 2023

We gather and explain the latest trends in the property market, including new build homes in London.

Surprisingly, 2023 performs differently than expected. In particular, current demand, supply, and price levels slightly differ from the forecasts. What are the key trends now?

Housing Market Takeaways - January 2023

• Average home value growth stalled in Q4 2022, pushing the annual inflation down to 6.5% from 8.3%.
• Most UK areas recorded marginal home value drops in Q4 2022, following the mini-budget and spiked mortgage rates.
• Current demand levels are in line with 2018 and are 10% higher than in 2019, just before the pandemic hit.
• Q1 2023 saw a slowly building market momentum, with buyers opting for smaller flats than spacious houses in response to high borrowing costs.
• Demand is likely to rise in the coming month as mortgage rates readjust and fall while prospective buyers realise that significant price drops are not on the cards.

Annual Price Growth Falls Everywhere Except London

Average house prices stopped growing in Q4 2022 as demand from buyers plummeted by almost 50% in late 2022. This trend will drive the annual growth levels even further as 2023 unfolds.

Interestingly, UK price inflation had slowed from 8.3% to 6.5% across all UK regions except London. The capital real estate proved its resilience against economic turbulence again, driven by an influx of international investment.

Moreover, we saw significant discounts on asking prices in Q4 2022 as sellers tried to secure deals faster. However, current gaps stay between 3% and 4%, and there are no signs of this gap widening further.

But generally, additional marginal price reductions are expected in Q1 2023 as sellers and developers continue to adjust to the worsened buying ability of people.

Property Demand In 2023

Demand for new homes, including new builds in London, stalled in H2 2022. However, current levels remain above the pre-pandemic years (+10%).

Generally, most experts anticipate a slow start to 2023, which is proving to be true. Many households put their homeownership plans on hold and monitor the prices and mortgage rates to secure more favourable deals.

Current mortgage rates sit between 4% and 5%, contrasting with 6%+ in Q4 2022. However, many buyers are still cautious, which is justified.

As the outlooks become clearer in Spring 2023, many predict demand to pick up further. A lot will depend on the labour market and inflation, as well as the potential increases to base rates.

Flats Are Regaining Appeal

The first few weeks of 2023 defined a clear trend in the property market as buyers' priorities shifted towards affordable new flats. Now around 27% of new buyers look for apartments (against 22% in 2022). By comparison, demand for 3-bed houses fell by 5%, even though this housing type remains the most popular option for UK buyers.

Expectedly, demand growth for new flats in London and adjacent towns outperformed other regions. An apartment in a town near the capital becomes a popular option for those who work locally or implement work-from-home.