There is no doubt that 2022 was a challenging year for the UK property market. Inflation rose to eye-watering levels, interest rates were hiked rapidly by the Bank of England, and Westminster seemed to be in a constant state of turmoil.
As such, making grand predictions about the future of the housing market in 2023 is an increasingly difficult task.
Looking back, despite the various challenges faced in 2022, the UK property market performed admirably. December’s house price index data from mortgage provider Halifax, for example, showed that while the annual rate of increase slowed, it was still up by 4.7 per cent in 2022.
When comparing with 2021 data from the Office for National Statistics, the average property value has grown by more than £10,000 and prices continue to sit above pre-pandemic levels.
In the prime central London property market, performance was similarly robust. According to estate agency Savills, demand and activity levels were strong across this sector of the market in 2022.
Indeed, figures from November 2022 show that sales of £5m-plus properties hit their highest level in the first nine months of a year since 2006 and PCL property values have grown by 2.4 per cent since March 2020.
There will of course be further difficulties for the housing market to contend with given the current macroeconomic backdrop, so what is the outlook for the prime London property market for 2023?
A cooling off period for the wider market
With inflation in double digits (10.7 per cent) and interest rates rising (2.9 basis points since December 2021), buying power has been greatly diminished in recent months. Consequently, the impact of these economic factors on the UK market as a whole is that house prices are expected to fall in 2023; indeed, they are already on the decline.
Data from mortgage provider Nationwide in December, for instance, shows that prices dropped for the fourth month in a row, while growth slowed to its lowest level since mid-2020.
Following the economic turmoil under Liz Truss’s short-term stewardship of No 10 Downing Street, a weakened currency and rising mortgage costs contributed to this slowdown.
As a result of a decline in buying power and rising rates, the Office for Budget Responsibility forecasts a 9 per cent drop in prices. Estate agency Knight Frank, however, predicts a fall of just 5 per cent, so forecasts do differ and should not be taken as a true indication.
Optimism for the PCL market
Despite a drop in prices more widely, the PCL segment of the market has always operated somewhat independently. For example, data from Savills shows the sector outperformed the wider UK property market in the fourth quarter of 2022 in the face of some particularly challenging economic headwinds. As such, the outlook for PCL in 2023 appears to be more positive, but why?
To start with, wealthy buyers are less likely to feel the harsh effects of the cost of living crisis.
Consequently, while the lower-to-middle echelons of the market could see a decline in activity due to a lack of buying power, the PCL market – which is driven more by global equity – should be insulated to a greater extent from any domestic economic turmoil by the nature of the buyers within it.
