Is the UK Property Market Slowing Down?

As an investor, you will be well aware that the timing of the property market is never easy to predict. The fact that the property is a traditionally slow-moving market makes it even harder to predict when things will ramp up or slow down. The long process of buying a property with a mortgage in an ever-changing market can also be problematic for property investors. Whilst residential buyers who are seeking a roof over their heads are less affected, buying an investment property at the wrong or right time can make a big difference to your ROI if you underpay or overpay on your investment. In this article, we will analyse if the property market is slowing down and what this might mean for property investors looking to grow their portfolios in 2023. 


Is the property market slowing down in 2023?

In June, house prices fell for a third consecutive month while year-on-year prices are down 2.6% according to Halifax’s monthly house price index. This is the largest annual house price drop the market has experienced since 2011. According to the index, the average house price now sits at £285,932 which is a 0.1% drop from the previous month. 

Whether this downturn in property pricing is set to continue remains hard to predict. However, high inflation rates and high-interest rates could cause property prices to fall further in Q3 and Q4 of 2023.

At the moment, there is a huge squeeze on mortgage affordability, making it harder for people to finance property purchases and consider if they can make an offer in the current economic climate. The good news is that steep energy prices and inflated food prices are set to reverse in the coming months. However, mortgage interest rates will likely remain high and may rise further which will further slow the property market down as fewer people are able to afford property purchases. 



How have property prices changed?

There’s no doubt that house prices have increased considerably in the last few years. Both the pandemic and stamp duty holiday created a volatile and competitive market. However, the time of low interest rates and stamp duty offers is well and truly over. The current market is making entering the market unaffordable for first-time buyers and anyone looking to move on needs to do so by taking out a new mortgage.

The UK house price index is the most reliable way to track what is happening to property prices. Its data is calculated based on completed house purchases and includes those bought cash and those mortgaged. The data below shows the current situation based on the latest data available from April 2023.

UK House Price Index April 2023 March February January December
Monthly variation 0.5% -1.2% -1.0% -1.1% -0.4%
YOY change 3.5% 4.1% 5.5% 6.3% 9.8%
Av. house price £286,489 £285,009 £287,506 £289,818 £294,000


Is the property market going to crash?

The OBR (Office for Budget Responsibility) updated their forecast for the property market at the same time as they announced the spring budget. They estimated that the property market would fall further than previously anticipated. The OBR has predicted that house prices will fall by 10% by 2024.

Additionally, mainstream lenders and banks such as Lloyds and Halifax have stated their expectations for house prices to fall by 8% by the end of the year. 

As stated above, the increased mortgage rates discourage buyers from entering the market. Whilst we cannot say there will be a property price crash in 2023, the downward pricing trend provides a lucrative opportunity for investors to secure investment properties at a favourable price in the second half of 2023 and beyond.



What does this mean for property buyers and sellers?

The property market’s annual price growth has slowed down since the summer of 2022. Of course, property will always be one of the soundest investment choices you can make. You’ll own a physical, tangible investment that generally will increase in value over time. It’s a great low-volatility investment choice that can balance a diverse investment portfolio. 

Currently, in the UK, there is a shortage of rental stock as tenant demand has increased with many tenants paying over the advertised rental costs to secure the best properties. This presents a great opportunity for investors in the buy-to-let market to purchase a property at a reduced price and make healthy rental yields, especially in the areas with the highest rental demands. 

Additionally, in a slow property market, investors have the opportunity to pick up a bargain. Why? Because, in many cases, sellers value time over money if they are looking to close a sale quickly to move on or if they are looking to exit the rental market due to government legislation changes. 

There’s no doubt that sellers no longer have the upper hand in property transactions. However, they often achieve sale prices closer to the asking price that was common pre-covid. Of course, the reason for selling and urgency to sell might affect how much flex a seller has in their offer pricing. For investors who are looking to sell a property but do not want to sell it below market value, a bridging loan could provide a solution to bridge the gap if they want to sell to fund another property purchase but don’t want to rely on the first offer they receive.



How does the current property market landscape affect mortgages and loans?

Interest rates are rising at their fasted ever rate while inflation is climbing and may well hit 13% this year. The Bank of England’s base rate alone has risen seven times since December 2022. All these factors put UK households under pressure. 

Homeowners and first-time buyers are struggling to meet the affordability criteria and are being priced out of homes that would have previously been affordable to them. For those on fixed-rate residential or buy-to-let mortgages, the current interest rate rises will likely lead to substantially higher repayments. 

For investors, this means their properties make less profit or even a loss which could force many to review their portfolios and even look to sell up if their investments are no longer paying off. Saying that, the strength of the rental market in the most sought-after locations keeps rent prices high and more likely profitable overall. 

Since many are holding off on buying a property in the current economic conditions, there could now be an opportunity for buyers to negotiate more than has been possible in recent years due to the drop in demand for some types of properties.



One thing is for sure. Uncertainty lies ahead in the property market. Recent escalations in the UK base interest rate have ignited concerns of a potential market downturn. Following the controversial September mini-budget, many major mortgage providers retreated their offerings and raised interest rates, elevating the overall cost of mortgages.

With the Bank of England’s recent hike in the base interest rate to 5%, these repercussions could be further magnified. Such actions are anticipated to curtail demand among prospective buyers and trigger a decline in property prices.

Various additional factors contribute to the tempering of the growth witnessed in recent years, specifically the prevailing cost of living crisis. Unprecedented prices for fuel and energy, mounting inflation and increased taxes have left most households with less disposable income to allocate towards purchasing properties.

While the annual growth of house prices has remained robust, there has been a noticeable decline monthly. If demand continues to decelerate and individuals possess smaller down payments, the rate of house price growth may dwindle even further.

Nonetheless, it would be premature to say there is an impending crash in property prices as demand still tends to outstrip the supply of homes in numerous regions across the UK. The presence of substantial demand is likely to act as a cushion resulting in a scenario where property prices experience a decline rather than an outright crash.