UK Residential Sector: May 2023 Update

June, 2023

The first half of 2023 has witnessed some interesting dynamics in the UK residential sector, influenced by various economic factors, legislative changes, and broader market trends. This article will explore these recent changes and provide insight into what's anticipated for the rest of the year.

Market Resilience Amidst Economic Challenges

Despite higher borrowing costs and uncertain market sentiment, the housing market remains more resilient than many had anticipated. The Royal Institution of Chartered Surveyors (RICS) Survey reveals that agents expect prices to fall in the coming months (potentially by as much as 10%), yet the outlook for the next year remains positive. Market conditions have been challenging, but a lack of distress and high levels of equity are acting as a buffer to more challenging economic conditions.

The UK economy shows signs of improvement, with the International Monetary Fund (IMF) upgrading the UK's forecast for 2023. The IMF no longer expects the UK to fall into recession this year. Instead, the UK's GDP is anticipated to rise by a modest +0.4%, a welcome shift from the -0.3% forecast in April. However, inflation remains an issue, with core inflation (excluding energy and food, alcohol, and tobacco) rising by 6.8% in the year to April, from 6.2% in March.

With 1 in 3 adults finding it increasingly difficult to afford their rent or mortgage, with the cost of living crisis being driven by high food prices, and a possible 3 more interest rate increases to come (up to a potential 6%), one may feel that perhaps the IMF are being very bullish in their outlook.

Housing Supply and Demand

In the new homes market, activity remains muted. The National House Building Council (NHBC) reports that new build completions fell 7% annually in Q1 2023, and the number of new homes registered to be built fell 40% to less than 28,000. This follows a 14% fall in new applications in 2022 compared to 2021 levels. In London, constructions starts were down 43% on Q1 2022.

However, the UK housing market shows signs of recovery. Low levels of unemployment, wage growth, and more equity within the market all mean forced sales are less prevalent. All regions saw a monthly fall in prices in March, but prices remain 4.1% higher than they were a year ago. The Halifax reported a -0.3% fall in April, following a rise of 0.8% the previous month, with prices on par (+0.1%) with April 2022. First-time buyer activity is proving more resilient than expected, with a competitive rental market driving those who can to buy instead.

Mortgage Approvals and Interest Rates

Uncertainty over rates has affected mortgage approvals. The Bank of England reports that the number of mortgages approved for house purchase fell by 5%, from 51,500 in March to 48,700 in April. The average rate on new mortgages rose to 4.46% in April, up 5 basis points on March figures. Borrowers repaid £1.4bn more than was lent in April 2023, marking the biggest net repayment on record aside from the pandemic period.

In contrast, the rental market continues to see robust growth, with annual rental growth at 9.9% across the UK in April 2023, and a current average rent of £1,199, 1.3% higher than the March figure. In London, rents rose annually by 11.0%, with average rents on new lets exceeding £2,000 per month.

The uncertainty lingering around the UK property sector has forced some high-street lenders to pull buy-to-let mortgage options off the market, and this is possibly as a result of as many as 700,000 people missing their mortgage payments and 5.2% of renters missing their rental obligations.

That being said, 1st time home buyer numbers have increased by 4% even though the average price of the typical 1st time buyer home has hit a record £224,903 this month.

International Perspective

The UK's residential sector doesn't exist in a vacuum, and overseas developments can offer valuable context. For instance, in the US (the main influence on the UK), the Federal Reserve increased its key interest rate by 25 basis points, pushing its benchmark rate to between 5% and 5.25%. This marks the tenth rate increase since March 2022, although the Fed hinted at a pause on further rate rises when they next meet in June.

In Asia, Singapore has announced a doubling of its Additional Buyer Stamp Duty. Overseas buyers purchasing a property in Singapore will now pay 60% tax on their purchase. Those buying using a trust will pay 65%, and permanent residents buying second homes in the city will also pay more.


Outlook for the Second Half of 2023

As we look ahead to the second half of 2023, it's clear that the UK residential sector is navigating a complex landscape. Market resilience and economic recovery are positive signs, but inflation, interest rates, and housing supply challenges will continue to shape the sector's trajectory. Additionally, international trends in the property market may also influence UK dynamics. Despite these challenges, the sector's overall resilience suggests that it's well-equipped to adapt to changing conditions.


Getting the right support

In these tempestuous times, choosing a reliable and experienced partner is crucial for navigating the intricacies of the property market. The Fountayne Group, with our established professional property management services, stands out as such a partner. With a keen understanding of the market's ebbs and flows, we offer a level of service and expertise that can provide stability and guidance amidst the sector's fluctuations. Our commitment to client service, industry knowledge, and strategic planning can provide a vital anchor for property owners and investors navigating the shifting landscape of the UK residential sector.

Get in touch with us today via for more information.

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