Even when we least expect it, the housing market can throw a few surprises our way.
It was largely anticipated we would see a subdued start to the year – but maybe not. The market defied expectations to make 5th January the third busiest day ever for valuation requests, according to Rightmove.
While a percentage of these will no doubt have been sellers testing the market, it has still sparked some renewed confidence for the year ahead.
In addition to this, the number of prospective buyers contacting agents was up 4% compared to the same period in the pre-covid market of 2019, and up by 55% compared with the two weeks before Christmas. Before we get too carried away however, it is worth noting the number of enquirers was still down by a third compared to January last year.
There were further surprises when it came to house prices, with January prices climbing 0.9% compared to December; marking the biggest January increase since 2020.
While it is not uncommon to see a New Year lift in house prices – especially after the drop off in activity towards the end of 2022 – the positive start to the year has caught many by surprise.
Both UK Finance and the Intermediary Mortgage Lenders Association (IMLA) are predicting a fall in house purchase activity in 2023, in-line with our own expectations.
UK Finance is expecting overall gross mortgage lending of £275bn in 2023, while IMLA anticipates gross lending of £265bn in 2023. When it comes to 2024, UK Finance is again slightly more optimistic than IMLA, with its prediction of £253bn gross lending, compared to IMLA’s £250bn.
In terms of property transactions, UK Finance’s prediction of 1,009 million in 2023 and 991,000 in 2024 may be down on the 1,476 million we saw in the buoyant market of 2021 but is only marginally below the pre-covid years. Considering there were 1,192 million transactions during 2018 and 1,177 million in 2019, 2023’s prediction signals a far from quiet market.
Nevertheless, even with some degree of healthy buyer and seller appetite, the prospect of further interest rate rises and affordability constraints will still dampen demand to a degree and see sellers having to price competitively.
It will be those sellers who price correctly the first time that are likely to attract the most buyers and ultimately a quicker sale, whereas those who price too high may be in for a more prolonged sale period, with the prospect of having to lower their price in order to sell. Managing seller expectations will therefore be key this year.
We may also continue to see social and economic factors come into play in terms of where we see buyer demand. The great return to the workplace is still yet to materialise, although it’s definitely getting there. While 2022 saw increased demand for city living as a portion of workers started to return to the office, the rail strikes and to a certain degree the threat of Covid returning has seen hybrid working cement itself firmly into the working culture of most businesses.
This will not only have short-term implications for housing but as long-term office leases start to expire, we could see a push to turn abandoned office space into residential homes, which could once again change the city living dynamic. The same could also apply to retail as we see the trend towards online shopping continue.
Historically lenders have not been keen on residential conversions, which is perhaps understandable, given the needs and considerations for residential properties are so different from commercial. This will certainly be an area to watch over the next five to ten years though as leases expire and hybrid working continues to be the norm.
In the short-term however, as the Rightmove figures show, the coming year might still have some surprises in store and not prove to be as muted as was expected. While it might not be time to start ripping up yearly predictions just yet, Rightmove’s figures offer the market some optimism and suggest while we may not reach the dizzy heights of 2022’s lending, some form of normal business will resume.
Simon Jackson is managing director of SDL Surveying
