How UK Economic Forecasts Impact Your Property Buying Prospects in 2023

How UK Economic Forecasts Impact Your Property Buying Prospects

As you consider investing in the UK property market, understanding the current economic forecasts is crucial for making informed decisions. Here’s a comprehensive guide to help you navigate the complexities of the housing market and how economic forecasts can impact your property buying prospects.

Understanding the Current Housing Market

The UK housing market has been through a significant transformation in recent years, influenced by various economic factors. As of 2024, the market is showing signs of recovery after a period of decline.

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House Price Trends

House prices in the UK have seen a notable increase. According to the Land Registry, the average property price rose by 2.8% between August 2023 and August 2024[1][5].

• Regional Variations: House price growth has not been uniform across all regions. Scotland, Yorkshire and the Humber, and Northern Ireland have seen the fastest growth, while London and the South East experienced declines[5].

Mortgage Rates and Affordability

Mortgage rates have been a key driver in the housing market’s recovery. The average rate on a five-year fixed-rate mortgage at 75% Loan-to-Value (LTV) dropped from 5.2% in September 2023 to 4.1% in September 2024, significantly improving affordability[2][4].

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Economic Forecasts and Their Impact

Economic forecasts play a pivotal role in shaping the property market. Here’s what the latest forecasts indicate:

Short-Term Outlook

For the remainder of 2024, the housing market is expected to continue its upward trend.

• Price Growth: Hamptons forecasts a 3.5% increase in house prices by the end of 2024 compared to the final quarter of 2023. This growth is attributed to lower mortgage rates and improved affordability[2].
• Transaction Volumes: Transaction volumes are expected to recover, with sales across Great Britain likely to total just under 1.1 million in 2024, up from 996,000 in 2023[2].

Long-Term Outlook

Looking ahead to the next few years, several factors will influence the property market.

• Price Growth Projections:

• Hamptons predicts a 3% price growth in 2025, followed by 3.5% in 2026 and 2.5% in 2027[2].

• Savills has revised its five-year forecast, expecting a 21.6% growth in house prices by the end of 2028, up from the previous forecast of 17.9%[4].

• Regional Performance:

• London is expected to outperform other regions for the first time since 2015, with a 4% annual price growth in 2025[2].

• The South of England is also anticipated to see significant price growth, reaching new peaks in many locations[2].

Factors Influencing the Property Market

Several economic and regulatory factors are influencing the property market.

Mortgage Rates

Mortgage rates have been a significant factor in the market’s recovery. Here are some key points:

• Current Rates: The cost of a five-year fixed-rate mortgage at 75% LTV has dropped to 4.1% from 5.2% in the past year[2][4].
• Future Trends: While mortgage rates are expected to remain relatively stable, any changes in the base rate by the Bank of England could impact borrowing costs[4].

Economic Performance

The overall economic performance of the UK will also play a crucial role.

• Income Growth: Strong income growth has helped mitigate some of the pressures from the cost of living crisis, supporting the housing market[2].
• Interest Rates: The new era of interest rates, likely to remain above 3%, will temper long-term house price growth[2].

Regulatory Changes

Regulatory changes and government policies can significantly impact the property market.

• Tax Changes: Speculation about changes to capital gains, inheritance tax, stamp duty, and non-dom status has made the prime markets more cautious[2].
• Leaseholder Reforms: Leaseholder reforms and the remediation of blocks with dangerous cladding may increase the supply of flats for sale[2].

Practical Insights for Buyers

If you are considering buying a property, here are some practical insights to keep in mind:

Timing Your Purchase

• Current Market: With house prices expected to rise, now might be a good time to buy before prices increase further[2][4].
• Interest Rates: Keep an eye on mortgage rates, as any significant changes could affect your borrowing costs[4].

Affordability

• Mortgage Options: Take advantage of the current lower mortgage rates to secure a better deal[2][4].
• Budgeting: Ensure you factor in all costs, including stamp duty and other fees, when budgeting for your purchase[2].

Regional Considerations

• Regional Growth: Consider regions that are expected to see significant growth, such as London and the South of England[2].
• Local Market: Understand the local market conditions and how they might differ from national trends[5].

Table: Savills Five-Year Forecast

Here is a detailed table from Savills outlining their revised five-year forecast for the UK housing market:

Source: Savills Research[4]

Quotes from Industry Experts

Here are some insights from industry experts that provide additional context:

• Aneisha Beveridge, Head of Research at Hamptons:
  “As the end of 2024 approaches, the mood of the housing market has shifted from trepidation to cautious optimism.”[2]

• Lucian Cook, Head of Residential Research at Savills:
  “Improving economic performance, combined with steady cuts to the base rate, will open up greater capacity for growth from 2025. But without the previously expected falls at the start of our forecast period, affordability constraints will become a factor towards the end of the five-year period, particularly in the already stretched markets of London and the South East.”[4]

The UK property market is poised for growth, driven by lower mortgage rates, improved affordability, and a strengthening economy. However, it is crucial to consider the various economic and regulatory factors that can impact your property buying prospects.

Key Takeaways

• Monitor Mortgage Rates: Keep an eye on changes in mortgage rates, as they can significantly affect your borrowing costs.
• Regional Growth: Consider investing in regions expected to see significant growth.
• Affordability: Ensure you factor in all costs, including stamp duty and other fees, when budgeting for your purchase.
• Long-Term Perspective: While short-term gains are promising, consider the long-term outlook and potential affordability constraints.

By understanding these factors and staying informed about economic forecasts, you can make more informed decisions about your property investment and navigate the UK housing market with confidence.