Property prices in the United Kingdom have been unpredictable for quite some time. After the COVID-19 crisis, the ‘mini budget’ at the end of 2022, and the ongoing cost of living crisis, there is no doubt that people across the country are facing financial challenges. In response to this, interest rates have been continually going up for the first half of 2023.
Stabilisation of the UK property market is generally considered a good thing, because it gives people the ability to budget and assess their options. If prices are constantly changing, it can be difficult to plan for the future.
So, what has happened to property prices in the UK? Our blog below gives you the current answers.
What has happened to UK interest rates?
Interest rates in the UK have been consistently increasing for a considerable period of time. In January 2023, the interest rate was 3.5%, but this was raised to 4% in February, and has since gone up again to 4.5% by May 2023.
The Bank of England is raising interest rates to try to curb inflation in the UK, which has been over 10% for more than a year. The aim is to get yearly inflation down to 2%, and the continually rising interest rates is a major part of their effort to achieve this.
Many economists predict that interest rates will rise even further in the UK throughout the second half of 2023. The extent to which this happens will largely depend on external factors.
What was the UK ‘mini budget’?
In September 2022, the UK Chancellor Kwasi Kwarteng presented a ‘mini budget’ to the House of Commons. This plan introduced tax cuts, which would be paid for by increasing the UK’s national debt. The aim of this plan was to boost the UK economy.
Some key policies in the mini budget include:
- Reducing the basic rate of income tax to 19% from April 2023
- The 45% additional rate of income tax to be abolished for the highest earners from April 2023
- Reversal of the 1.25% rise in National Insurance, from November
- Plan to scrap an increase of corporation tax from 19% to 25% in April 2023
- Around 120,000 more people on Universal Credit to be asked to look for more work or face benefit sanctions
Many of these policies were later withdrawn.
The UK mini budget resulted in the pound sterling dropping considerably; certain banks and building societies withdrawing mortgage products; and the Bank of England kickstarting immediate discussions to increase the interest rate.
For the following seven months after the mini budget, house prices in the UK fell. After this period of economic uncertainty, the market appears to have stabilised slightly.
What has happened to UK Property Prices in recent months?
April 2023 saw the first property price increases in the UK for seven months. After the ‘mini budget’ at the end of the previous year, house prices are going up once again. Meanwhile, in May 2023, average new seller asking prices have jumped by 1.8% (£6,647) according to Rightmove.
Despite increases in the past two months, the final months of 2022 and the opening months of 2023 saw prices decrease significantly. Nationwide Building Society said that house prices had fallen by 3.4% in the year to April 2023, the biggest annual fall since 2009.
In the long-term, property prices in the UK have been increasing for many years. Indeed, despite the price rises in April 2023 and May 2023, UK house prices are still 1% lower than they were at this time last year. This is the first time since 2012 that this has happened, demonstrating that house prices may be stabilising slightly.
Is Summer 2023 a good time to buy a house?
Lots of people in the UK are waiting for interest rates to decrease before purchasing a new property, or buying one for the very first time. When interest rates are high, it means that mortgage repayments are more expensive, and many economic experts are suggesting that interest rates could still rise even further. It therefore remains unclear whether overall house prices will drop.
With that being said, this has not deterred all people from purchasing property at this time. With less buyers on the market, it can (in some instances) give more power to the person offering to buy, because sellers have less alternative options. Meanwhile, lots of people are selling their properties so they can downsize, because they can no longer afford the monthly bills and repayments of their existing house.
How have property prices changed in each UK region?
According to Nationwide Building Society, all four countries in the UK experienced decreasing house prices in the first three months of 2023:
- Northern Ireland dropped by 1.3%
- Wales fell by 1.7%
- England dropped by 1.9%
- Scotland experienced the biggest decrease of 2.3%
It is unclear how property prices will continue to fluctuate (or stabilise) in the second half of 2023. Economic policies, political situations, and much more will have a dramatic impact on the house market, and what happens to the prices.
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