December 13, 2023
Predicting anything can be risky, we know this because along with friends and colleagues in the property investment market, we do it every year. Revisiting property predictions is even more fraught!
What if we all got it completely wrong? Just how much egg to the face can we tolerate? But – maybe we were right. There’s only one way to find out.
For the first time, we’re going to clutch our property professional reputations firmly in hand and look to see how well our predictions from last year have stood the test of time.
No names, no pack drill, although (spoiler alert) we all did remarkably well it turns out!
Predictions vs reality
As normal, we solicited opinions from professionals across the breadth of the property investment community. That meant we had input from mortgage brokers, solicitors, buy-to-let professionals and more.
By and large, their predictions were focused on their own areas of expertise, although all are more than knowledgeable enough to offer some views of the broader market.
Higher prices and higher interest rates will make buying harder
Absolutely on the money. Property market reporting throughout 2023 has focussed on how hard buyers are finding it to obtain both mortgages they can afford and property they want to buy.
Split up by country, it looks like this:
Property prices will slow in 2023, despite demand continuing to outstrip supply
Normally, with high demand and issues on the supply side, you would expect house prices to keep on rising. However, high interest base rates, coupled with more expensive mortgages and the rising cost of living have quashed this.
The dearth of suitable properties is a systemic problem, however the Bank of England’s drive to reduce inflation, coupled with external influences such as the continuing war in Ukraine have seriously constrained spending.
As a result potential buyers are still struggling to find ways to finance home purchases.
Prices have fallen, or more accurately, the rate of property price rise has slowed notably. They continue to rise, but more slowly than in previous years. The Office for National Statistics tracks these changes on a regular basis.
Interest rates will start falling mid year
Ah – got this one wrong we have to confess. As the Bank of England (BoE) website shows only too graphically, interest rates have continued to rise throughout the year, with the BoE only resisting further rises late in the year.
Inflation has started falling however.
There will be strong rental demand, with rents not rising as quickly due to the cost of living crisis.
To paraphrase, this prediction was like the curate’s egg – good in parts. Rental demand has remained high throughout the year, due in large part to factors already mentioned.
However, increases in rent have continued apace as the increasing cost of borrowing and the rising cost of living has affected landlords every bit as much as it has affected their tenants.
This has led to many press stories of landlords leaving the market and there is no doubt that some landlords have found their margins shaved to a shadow of what they were only a few years ago. Some go further, saying that the market is broken.
Estimates of the number of landlords selling up vary widely, and while some will quit every year for a whole host of reasons, there does seem to be a number eyeing costs and looming regulation with some concern.
Landlords will struggle with increased regulation.
This was a fairly safe prediction, and so it has proved. 2023 saw the publication of the Renters (reform) Bill which will radically shake up the PRS in England and Wales.
Already the threat of removing the right to no-fault eviction has been put on the back burner, but the direction of travel is clear.
Further regulation concerning energy efficiency has infuriated landlords, not just because of the potential costs, but because the government seems to be continually changing its mind
You can read more about this in our blog ‘EPC Changes in England…’. Suffice it to say, that north and south of the border, existing and prospective landlords are going to face a much tougher regulatory climate.
The law of unintended consequences…
In Scotland, where the rental market has been subject to government-mandated rent controls, tenants have discovered that this hasn’t guaranteed low rent inflation.
On the contrary, with their ability to alter rents severely restricted, landlords have tended to levy higher increases on rents when a previously tenanted property returns to market after the end of a tenancy.
While this is bad news for tenants, it’s understandable given the fiscal pressures which affect landlords every bit as much as tenants.
Further Scottish plans to reduce the climate impact by driving properties towards the use of heat pumps and away from heating that uses non-renewable energy are causing increasing dismay.
With threats of fines for failing to comply, but little in the way of financial incentives to effect what are expensive changes, the Scottish government may find that it has united homeowners and landlords – another own goal.
Increasing repossession of buy-to-let properties
A sad corollary of steeply increasing costs, there has been a notable increase in mortgage arrears and subsequent repossessions in 2023.
These difficulties obviously don’t just affect buy-to-let landlords, but regardless the net effect is to further chip away at the number of properties available to those desperately looking for a home to rent.
Advice from the property pros
We don’t like to blow our own trumpet, but well, we’re going to!
By and large, when looking back at our property predictions from 2022, they’ve been remarkably accurate. Inflation proved to be stubbornly resistant to change for longer than expected, hence the hiccup on the interest rate prediction.
In fairness, HM Government got that one wrong too, so we’re in good company. Beyond that, our panel of experts proved that they understand the market they serve exceedingly well, and we thank them for their contributions.
2023 was a challenging year for the country, and it’s no shock that those challenges also had an impact on the buy-to-let market and other aspects of property investment.
As we have written in many blogs, there is still the potential to achieve a healthy return from property investment, but it is more vital than ever to get your ducks in a row before starting.
In summary…
We’re delighted to see just how good last year’s predictions were, especially as we are currently pulling together our thoughts on what to expect in 2024!
Without committing ourselves at this stage, we suspect that 2024 will have its challenges, and with the prospect of a change of UK government on the cards, things could get interesting.
Until then, if you fancy a chat to discover whether the buy-to-let market might serve you well, just pick up the phone or drop us a line, we’d be happy to guide and advise you.
Thank you so much for reading!
Written by Chris Wood, MD & Founder of Portolio
Get in touch on 07812 164 842 or email [email protected]
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