With various complex factors impacting the housing market, it’s difficult to predict what the property sector is likely to face in the months and years ahead. In light of the current economic uncertainty, there is an even greater challenge for those in the industry looking to plan for 2023 and beyond.
We review some of the factors that are set to shape and challenge the residential property market moving forward.
Help to Buy Ending
The government’s Help to Buy scheme is closing to new applicants at the end of this month. This is likely to have a considerable impact for buyers looking to take their first steps onto the property ladder. With over 225,000 buyers using the scheme since 2013, other first-time buyer lifelines like Shared Ownership and Deposit Unlock will become the primary support for this segment of the market.
Stamp Duty
In his September ‘mini-budget’ statement, Chancellor of the Exchequer, Kwasi Kwarteng, raised the stamp duty thresholds in a bid to encourage more people to purchase homes in England and Northern Ireland. These changes have seen the nil-rate tax band double, now applying to all homes priced up to £250,000, with the government predicting that this will enable 29,000 more people to move home each year. First-time buyers (FTBs) have been particularly targeted in these latest stamp duty reform. There is no stamp duty for them on properties up to £425,000 (previously £300,000) and this relief now applies to homes valued up to £625,000 (from £500,000).
With stamp duty changes set to disproportionately benefit first-time buyers, it is possible that demand for one and two-bedroom homes may increase in the short term. However, with high-interest rates and house prices at an all-time high, and a shortage of housing stock, there is still a great deal of uncertainty about the impact of this change for buyers in the long term.
Interest Rates
The day before the mini-budget, the Bank of England announced an increase in the base rate of interest from 1.75% to 2.25%. With UK inflation levels currently at 9.9% (substantially higher than the target of 2%), the theory behind rising interest rates is that buyers will be encouraged to save more and borrow less, in turn limiting demand and preventing dramatic price increases. However, the impact on consumers is largely dependent on how high street banks decide to reflect this in their own interest rates.
The base rate of interest has risen seven times since December 2021 from 0.1% up to 2.25%, however many banks are yet to increase the interest paid on their savings accounts. Although it is possible that some or all of these rises will be reflected in high-street interest rates at a later date, economists are quick to point out that average saving rates would continue to remain significantly below inflation, resulting in an overall decrease in the value of money. The impact that this will have on the housing market in the medium and long term is dependent on how long inflation levels remain high.
Mortgage Matters
On the other hand, higher interest rates have been reflected in mortgages. Prospective buyers and those on variable mortgages are facing higher rates of interest, making buying a home purchase more expensive. This, combined with the mass withdrawal of mortgage products from the market due to uncertainty, is likely to provide challenges for the property sector, with buyers unable to secure mortgage deals.
In light of this uncertainty, Kwasi Kwarteng is considering extending the mortgage guarantee scheme currently set to finish at the end of the year. Reducing the risk for banks and building societies offering 95% mortgages, an extension of the mortgage guarantee scheme may prolong the availability of low-deposit mortgages.
Green Homes
As energy prices continue to climb, the cost of living is increasing for people across the world. In the UK, the energy price cap rose from £1,971 to £2,500 on the 1st of October. Other costs have also increased including food prices and fuel prices, meaning buyers are likely to have less disposable income. However, for those with the budget to buy or relocate, new build homes are often substantially more energy efficient than older properties. A recent Savills article, for example, has reported that 97% of new build homes delivered in the past five years have an EPC rating of B, compared to just 5% of second-hand home sales. With energy efficiency considered a ‘must have’ by 58% of those surveyed by Halifax, housebuilders need to ensure that sustainability is at the forefront of their design and planning process.
The Impact of Gen Z
With those at the upper end of Gen Z now in their mid-twenties, it is likely that this age range will consider leaving the family home over the next few years. Understanding the best ways to market to and effectively communicate with this group will therefore become increasingly important for those in the property sector looking to rent or sell properties.
Having grown up surrounded by technology, British Gen Z adults are 23% more likely to use social media at least once a day than the average adult. This means that social media and digital marketing present an excellent opportunity to reach this audience. Playing a considerable role in the consumption patterns of the generation, HubSpot’s latest report shows that 71% of Gen Z in the US state that social media is where they are most likely to discover products, with trends such as #TikTokMadeMeBuyIt gaining traction.
The areas we have discussed above suggest that there are many challenges ahead for the property sector. However, whilst developers might have to work harder there is also plenty of opportunity for innovation and creativity and those in the sector that are forward thinking and innovative will find solutions, ride this wave of uncertainty and come out stronger.