Money management

Has it been a damp spring for the UK property market?

June 26th, 2023.

Met office figures revealed that spring 2023 was one of the dullest in history, with the UK seeing only 70% of the season’s average sunshine and more than its average rainfall. Although the weather picked up in June, can the same be said for the UK property market? UK inflation finally fell below 10% in April, but it has proved stickier than expected and investor concerns over further rate increases from the Bank of England have caused more upset in mortgage markets.

When I was first asked to write this article, I was hoping for signs of cautious optimism as spring is traditionally the season when the property market starts to pick up. Markets had appeared to settle following the upheaval of Liz Truss’s ill-fated mini-budget last autumn. Some stability and competition had even started to return on expectations that bank rates would begin to fall as soon as inflation started coming down later in the year.

However, the property market was thrown into turmoil again over recent weeks following the announcement of higher-than-expected inflation figures in May and then a stronger labour market, as both low unemployment and buoyant wage growth defied the forecasts for a loosening in monetary policy. The latest data just released for May shows that headline inflation has stuck at 8.7%, despite 12 consecutive interest rate rises since December 2021. As a result, the market outlook has changed dramatically, and mortgage lenders have pulled products at short notice and increased their rates leaving buyers and homeowners facing higher borrowing costs. With stubborn core inflation and renewed uncertainty over when rate increase will slow, the housing market now faces the challenge of mortgage affordability.

Part of the problem is that despite a 13th rate increase this June, only a third of borrowers have actually been affected by the higher mortgage costs, as the rest are still protected on existing fixed rate deals. For many it could be another two or three years before they need to remortgage, reflecting a considerable lag in the impact of high interest rates and their effect on the economy. Especially, when you also consider that only around 38% of the UK population have a mortgage or loan, and almost 28% of the population are mortgage free, so will not be affected by rising rates.

To many who are trying to get a foot on the UK property ladder or who bought a home for the first time after the 2008 crisis, the last six months or so have been quite a shock. Against a backdrop of rising interest rates, the cost of living crisis and growing fears of recession, the cost of servicing a mortgage has increased substantially.

The latest research from Moneyfacts showed that the average rate on a two-year fixed deal rose to 5.92%, and the average rate on a five-year fixed stood at 5.56% by 15 June. Significantly more than in May last year, when two-year and five-year fixed rates stood at 3.03% and 3.17% respectively.

The buy-to-let market is particularly challenging as most have interest only mortgages so someone paying 1.5% a couple of years ago is now looking at an average rate of over 6%. With monthly repayments up so significantly, the eroding of tax allowances and increased regulation in the pipeline, the economics of buying to let is a lot less appealing and could lead to more landlords pulling out of the rental market, putting more pressure on renters.

With so much volatility and uncertainty over the direction of interest rates, is it all doom and gloom for the UK property market? Maybe not. There are signs of the market cooling, as the value of gross mortgage advances in Q1 2023 was £58.8 billion, £22.9 billion lower than the previous quarter, and 23.6% lower than in Q1 2022. This was the lowest observed since Q2 2020. Most of the indices are also reporting an easing of average house prices, but these belie differences across property type and geographical regions.

It’s certainly increasingly difficult for first-time buyers with small deposits, but there are still cash buyers, international investors and those with support from the bank of mum and dad. Many experts believe the drop in the market is unlikely to be as dramatic as during the financial crisis, when house prices fell by 17.5% between November 2007 and April 2009.

Ultimately, house prices are likely to be buoyed by a number of factors, not least the robust labour market, historically low housing supply, and an improving economic outlook (the UK economy returned to growth, up 0.2% in April). With falling energy prices the economy is expected to avoid a recession but so much will depend on the Bank of England’s next move. Current inflation at 8.7% is over four times higher than the central bank’s 2% target, but the policymakers walk a thin line between driving down inflation and tipping the economy into recession. Current forecasts are for base interest rates to peak at around 5.75% by the start of 2024 and then come down. All eyes will be on the next round of economic data.


Clients can borrow against a UK, Isle of Man or Channel Island-based residence, be it a home or an investment property. We also lend against investment portfolios and loans can be denominated in Sterling, Euros or US Dollars. With clients in 160 countries, we often help clients based outside the UK, and have lent using the same approach across market cycles since 1987.

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Sources: BBC News, The Times, Bank of England, Financial Times, Reuters

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