What's happening to the UK real estate market and how is it affecting prices?

Current situation in the UK real estate market

The UK real estate sector has been facing serious challenges in recent months, with rising interest rates and a decline in overall interest in buying a home causing serious concern. What are the current realities for potential buyers, and how much does housing cost in London and other cities across the country? Let's analyze in detail the current situation in the UK real estate market from the point of view of an expert in the field.

Instability in the housing market

Over the past few months, the housing market in the UK has demonstrated significant volatility. Rising interest rates have encouraged people to reconsider their financial options, while consumer interest in apartments and houses is gradually declining. What underlies this situation and how is it affecting house prices? What is the situation with rentals? What changes may occur in the future? Alisa Zotimova, manager and founder of the London real estateagency AZ Real Estate, answered these topical questions.

Reasons for declining interest in real estate

“We are seeing a price adjustment that has occurred following the surge in interest in real estate during the pandemic,” she told us. According to the latest data, the decline in demand has had a tangible impact: thus, according to annual data, interest in residential real estate fell by as much as 44%. What is the reason for this trend? Is it a general trend throughout the country?

It is worth noting that November 2022 saw an even steeper fall of 47% compared to the same period in 2021. The 44% figure reflects the decline that occurred after the introduction of the new economic plan “mini budget” in September of that year. This plan envisioned investments of about£40 billionThis led to the collapse of the pound against the background of already existing high inflation. As a result, the Bank of England was forced to increase the refinancing rate to3.5%. Although the new government led by Rishi Sunak made adjustments to the proposed measures, the negative consequences were putting their stamp: mortgage interest rates increased significantly, creating additional difficulties for many potential buyers in getting approved for a loan.

Impact of economic factors

To be sure, the “mini budget” was not the only factor that contributed to the decline in interest in home buying and the increase in mortgage rates. Rather, this event was the result of a chain of previous negative factors related to market regulation following the strong demand growth seen in 2020 and 2021, when more2.5 million Britonsconcluded transactions in the real estate market. The current situation was also due to the economic difficulties caused by the COVID-19 pandemic, as well as relevant policies of the UK government and Central Bank during this difficult period.

Regional differences in the market

It is important to note that different regions and market segments react differently to the ongoing economic changes. Buyers who are interested in housing costing up to500,000 poundsare likely to be most affected by rising mortgage rates. They will find it difficult to get the loan they need or be approved for as a result of the increased financial burden. Therefore, many potential buyers will be forced to consider smaller housing options or move to more affordable neighborhoods.

Future prospects for the real estate market

Thus, the UK real estate market continues to remain under pressure and its future evolution will depend on a variety of factors, including macroeconomic conditions and domestic economic measures.

Demand in the UK housing market

There is a steady interest from buyers who do not plan to apply for loans. In addition to this, there has been an increase in interest in buying property from Europe and the United States: with the depreciation of the pound sterling, investing in British real estate is becoming attractive to overseas investors. How has this affected house prices?

Price trends

Although interest in real estate has waned in the last few months, the impact of this fact on pricing is still negligible. According to Zoopla's latest report for December 2022, the average annual price increase was as follows7.3%. The trend of slowing price growth has become noticeable, and as a result some sellers have started to adjust the price of their properties. However, full-fledged changes in prices are likely to be noticed only by the end of the first quarter of 2023.

Remarkably, during the pandemic, housing costs increased by approx.20%in two years, made possible by radical measures to support the economy, the introduction of tax preferences and lower interest rates.

Analysis of house prices in the UK

Let's take a look at the specific figures and compare how the average cost of an apartment in London and other cities in Britain compared to last year. According to a report by the UK Office for National Statistics (ONS), in October 2022, the average price of a home in London reached£541,720Approximately$670,000), while a year earlier it amounted to£507,704.

• Manchester:
  • October 2022 -.£235,629
  • October 2021 -.£207,349
• Liverpool:
  • October 2022 -.£180,049
  • October 2021 -.£162,126

Features of the real estate market

There are a few key aspects that attract the attention of foreign investors in the UK real estate market: the ownership system and tax conditions.

• Types of real estate rights:
  • Freehold:Full title to the facility and land, which provides full control over the property.
  • Leasehold:the possibility to use the housing for a long period of time (up to999 years), with the obligation to pay rent for the land.

Taxation

As far as taxation is concerned, the UK does not accept tax on property ownership, which makes property maintenance less burdensome than in some other countries. This fact has a favorable effect on the attractiveness of the British market for foreign investors, as there are no additional tax liabilities associated with property ownership.

Conclusion

All of these factors contribute to the fact that the UK real estate market continues to be attractive to foreign investors despite the challenging economic realities.

Differences between real estate markets

The question of the differences between the London real estate market and other regions of the United Kingdom raises many interesting aspects. It is clear that the capital and the rest of the country are two distinct segments with a number of significant differences.

In addition, the UK is home to rapidly developing industrial centers such as Birmingham, Manchester and Liverpool, where new residential developments are being actively built.

A brief overview of the process of buying real estate in the UK

In general, buying real estate in the UK is a complex and multi-phase process that usually takes several months to a year and requires the involvement of a variety of experts, including lawyers. It is important to note that the purchase of real estate in this country does not affect the receipt of a visa or change of visa status. As a rule, property owners are those who already speak English and have a long-term visa or permanent resident status.

Reasons for investing in real estate

One of the main factors that attract foreign investors is a reliable legal system that protects the rights of owners, as well as a stable economic situation and high profitability prospects. In this regard, there is a question: what kind of profit is possible to get from real estate investments and what are the ways to get it?

Ways to generate income from real estate

• Buy-to-let methodThis method involves the purchase of residential properties for rent. This approach is particularly popular among investors in the UK, and the return on such properties is around 5% per annum, excluding various costs and taxes.
• Reselling real estate: It is possible to sell a property after it has appreciated in value, generating additional income. For example, if an apartment in London was bought ten years ago, its value today could increase by an average of 78%.
• Repair and construction: It is also worth considering purchasing properties for renovation or new construction and then selling them for a profit.

Current situation in the rental housing market

Now the rental market in the UK is in crisis. “It can be quite costly to rent an apartment in London, but this is not the only problem,” many people share their opinion. Personal experience of moving to this country forms real expectations.

Dynamics of rental prices

In terms of rental market dynamics, according to Zoopla's December report, residential rental values in the country have increased by 12% in the last 12 months. Rental demand is currently 46% higher than the annual average over the past five years, while at the same time, the number of properties available for rent has fallen by 38%. There has been a shortage of quality accommodation in the rental market for a long time and this situation has only worsened in the last six months.

Rental price growth rates in large and small cities

There are many reasons contributing to this situation, but it is not worth delving into them. In larger cities such as London, rental price growth is much higher than overall: for example, in London rents have increased by 17% over the last year. In smaller cities such as Oxford and York, the increase was less than 8%.

Average rental rates in different cities

At the moment, the average rental prices in different cities are as follows:

• London - £1879 (close to $2330)
• Manchester - £928
• Birmingham - £820
• Liverpool - £717

This data shows how diverse the rental housing market is across the country.

Conclusion

To conclude, it can be concluded that the UK real estate market is going through challenging times, which are driven by a multitude of factors. Having witnessed this dynamic situation, I realize that the current stagnation and decline in demand are not just temporary phenomena, but the result of successive economic and political changes over the past years.

Market correction

The market correction we are seeing now should be seen in the context of the effects of the pandemic and interest rate changes. While some buyers are facing difficulties due to rising mortgage rates, others, including international investors, see this as an opportunity for profitable acquisitions.

Housing prices

Housing prices, despite the decline in demand, have so far remained stable, suggesting that the market still has internal stabilization mechanisms in place. However, the outlook is disappointing:

• Most likely, a change in price points is just around the corner.
• We'll see the effects in the coming months.

Market peculiarities

Ownership systemandtax regulationalso add their own nuanced understanding of the UK market. This makes it unique compared to other countries, which is important for both local buyers and foreign investors to consider.

The future of the market

Thus, the current period is a time of waiting and adaptation as market participants evaluate their strategies and plans. The future of the UK real estate market will depend on many factors, including economic changes, political decisions and potential external fluctuations.

Conclusions

With this in mind, it is important to monitor developments in order to make informed decisions for both personal investments and professional endeavors. Ultimately, time will tell how quickly the market will recover and what new opportunities it will offer.