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The UK Property Market: Challenges Amidst Changing House Prices

By November 6, 2023January 4th, 2024No Comments

The UK Property Market: Challenges Amidst Changing House Prices


Commercial Property Insight


November 6, 2023
The read
One of the UK’s largest mortgage lenders has recently made a prediction that house prices are expected to decline not only for the current year but also the next, followed by a much-anticipated rebound in 2025.
Kate Johnson, a Property Partner at Square One Law, has shared her valuable insights on these developments and what their potential implications could be for the property market.

Inflation and Interest Rates: A Balancing Act

One of the key concerns looming over the entire economy, including the property sector, is the spectre of rising interest rates as a result of inflation rates remaining stubbornly high, albeit gradually decreasing.  The Bank of England had been hoping for a lower inflation rate of 3.5% by early 2024, aiming for a long-term sustainable rate of 2%. However, the reality is that inflation is not falling as quickly as analysts had anticipated, hovering around 6.7%.

Multiple factors have contributed to this persistent inflation, including high energy and oil prices, and supply chain disruptions triggered by the Ukraine War. Until inflation reaches a lower sustainable level, interest rates are likely to remain high.


The Impact on Mortgage Rates and Market Activity

The repercussions of these high interest rates are being felt in the housing market, where mortgage rates rise in tandem. This increase in borrowing costs leads to decreased activity in the housing market and in housing investment. Consequently, house prices begin to falter due to affordability issues and waning consumer confidence.

To make housing schemes financially viable in such an environment, house builders seek to increase profit by increasing the density of schemes to offset the high land prices that they have already locked in. However, this strategy brings with it its own set of challenges.


Planning, Sustainability, and Viability

The pursuit of higher density housing schemes can put strains on urban planning, often leading to compromises in terms of green space and design. Such compromises have a direct impact on the sustainability agenda, as they may impede efforts to create more environmentally friendly and liveable communities.

Viability tests are put under stress, placing downward pressure on planning obligation commitments, which does not promote a prosperous residential property market.

Furthermore, increased density can also affect construction costs. Building contractors must factor in the increased costs of materials when pricing these projects, and these increased costs can erode much of the potential profit gains achieved through higher-density developments. As a result, the benefits for housebuilders are often only marginal.

In conclusion, the property market in the UK faces significant challenges amidst predictions of declining house prices, driven in part by persistently high inflation and interest rates. The balancing act between maintaining affordability and achieving financial viability for housing schemes remains a delicate one. Finding sustainable solutions that promote a healthy and fully functional residential property market is crucial in navigating these uncertain times.