2023 UK Property Market Roundup

2023 has been a year of falling property prices and tremendous rental growth. However, those prices have also been affected by rises in mortgage rates. This has been the ongoing story of the year – with tenant demand leading to high gross rental yields.

The market also proved resilient in the face of external economic pressures, such as high inflation and burgeoning interest rates, following the pandemic, the Ukrainian conflict and the 2022 mini-budget fiasco. This resiliency highlights why many investors turn to property for passive income in the UK.

In this guide, we’ll provide a comprehensive rundown of the ever-changing landscape that was the 2023 housing market, using data from HM Land Registry, Nationwide, Zoopla, HomeLet Rental Index and other sources. Our data should help investors determine whether the UK is the best place to buy property according to their investment goals.

Read on for more information.

Q1 2023 set the tone for the rest of the year as far as house prices were concerned. House price growth began a gradual decline.

A month-on-month fall in property prices saw prices drop from £286,321 in January to £281,555 in March. Per the HM Land Registry UK House Price Index, house price growth dropped to 5.0% in January (down 3.1% from December). By March, price growth had fallen further to 2.8%.

While this may seem negative, the statistics also reflect the massive change in house prices post-Covid. Prices rocketed to £292,674 following the pandemic – an all-time peak for the UK property market – caused by a surge in transactions and huge buyer demand.

The price increase was unsustainable. The bubble needed to burst. Unfortunately, this came in the form of Kwasi Kwarteng’s mini-budget and a cost-of-living crisis.

As confidence in the GBP waned, many would-be investors chose to save money rather than make an expensive purchase in the property market.

The resulting drop in demand meant property prices fell, and asking prices dropped as sellers looked to attract buyers. However, this served as a healthier market reset compared to the alternative – a housing market crash.

However, the rental market saw a huge boost thanks to rising tenant demand contributing to substantial rental growth.

Rental inflation increased by 11% in Q1 2023 due to a lack of properties available on the UK market. This supply and demand imbalance would go on to affect the UK property scene for the remainder of 2023.

This was fantastic news for property investors, though the cost of living crisis threatened to price tenants out of many properties.

The UK’s major cities saw substantial rental growth, which went on to be the case for most of the year, particularly in London, which had the lowest rental supply levels in the country in Q1.

If you want to invest in buy-to-let properties, our buy-to-let housing guide is a good place to start. You may also want to read our stamp duty buy-to-let guide to better understand the additional costs of property investment.

As we moved into Q2 2023, house prices continued their downward trajectory. However, rising mortgage rates meant that buyer activity remained low and rental prices went up to cover costs for landlords.

Between April and June, people expected house price growth to fall at a gradual rate. Price growth seemed unattainable due to the cost of living crisis and other factors limiting property affordability. The price growth percentage change dropped to 1.90% in April before falling to 1.00% in May and recovering slightly to 1.20% in June.

However, property prices did increase in Q2 2023 – albeit slowly – from £281,555 at the end of March to £286,315 at the end of June. While the market was cooling, housing demand remained high, defying adversity in the UK economy.

On a regional level, London was hit by uncertainty in the UK housing market due to the city’s notoriously high property prices, which meant a house price drop year-on-year and month-on-month throughout Q2 2023. The capital also recorded the lowest annual price growth during Q2, falling to 0.6%.

Regarding rental growth, the UK average sat at 10.4% by the end of June, accelerating in most regions month-on-month. The North West saw the most significant hike in rental growth in the last month of Q3, leading to substantial gross yields for buy-to-let investors.

For more information on property investment, check out our guide to investing in Manchester property and our guide on buy-to-lets in Liverpool. We also have some useful guides on specific regions and cities across the UK, including our buy-to-let Aberdeen and buy-to-let Bexley articles.

Q3 2023 saw the UK housing market fall further, but there were some optimistic signs that things would improve.

House prices fell by 0.2% in July, meaning annual price growth fell by 3.8%. However, home values were close to their all-time peak in July 2022, explaining the sizeable adjustment.

The Nationwide House Price Index showed a house price growth decline of -5.3% in September, which was much more significant than the figures in the HM Land Registry UK House Price Index. However, it is worth noting that Nationwide’s price growth figures were unchanged between August and September. Those statistics show the continuing pressure interest rates have had on the housing market through 2023.

While surveyors predicted a rise in supply in May, those figures dropped in June and fell further in August and September. By the end of September, demand fell further than supply, which would affect asking prices throughout Q4 2023 as sellers tried to entice buyers into a deal with lower valuations.

Through Q3, inflation fell to 6.3%, according to ONS, which aligned with predictions.

Q4 saw inflation reach its lowest point in over a year, falling to 4.7% in October. This meant the Bank of England’s interest rates plan had halved inflation rates ahead of schedule. The Base Rate has held at 5.25% for three months, prompting mortgage lenders to drop their mortgage rates to encourage new activity in the market.

According to Rightmove, asking prices have dropped by £7,000 on average as sellers try to push through sales in a subdued market.

However, the Nationwide and Halifax House Price Indices showed positive changes regarding month-on-month price growth. Nationwide saw monthly price growth in October (0.9%) and November (0.2%). Halifax revealed house price growth of 1.10% in October and 0.50% in November.

As of writing, the latest house price data for these indices is unavailable. However, December is often a quiet month for the UK housing market, so expect price growth to slow. However, as mortgage lenders lower their rates, there may be some surprising movement in the run-up to Christmas and increased activity in the opening months of January.

Rental growth slowed slightly in Q4 2023. According to the HomeLet Rental Index, the average UK rent in November was £1,279, a -0.3% change from October. However, year-on-year growth is up by 8.9%, demonstrating the effect tenant demand has on the UK rental market.

2023 defied expectations. Many forecasters thought prices in the housing market would fall by up to 10%. However, the Nationwide and Halifax indices show a much more positive outlook, falling by -1.00 and -2.00%, respectively.

Many expect prices to bottom out in 2024 as buyer activity intensifies in the market. With mortgage rates declining, housing will become more affordable. In turn, prices may increase towards the end of the year.

Savills predicts a 6% rental growth for 2024, so yields will increase further but less dramatically than they have done over the last few years. Over the next five years, the UK property market is also expected to see capital value growth of at least 17.9%, with regions like the North West predicted to see averages as high as 20.2% by 2028.