What Falling House Prices, And A Housing Crisis Means For Property Investors

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The UK housing market is facing turbulent times, with rising energy costs and interest rates all playing a part in falling house prices. For those who make an income from property investment, the fall in house prices poses a question on what it all means for their property portfolio.

Earlier this month, mortgage lender, Halifax announced that UK house prices have dropped by 2.3% – which is the biggest fall in 14 years. With this, November marks the third month in a row that prices have dropped – with the average house price in the UK falling from £292,406 to £285,579 between October and November.

The drop in prices has been expected by property experts for a while now, due to two years of inflated house prices. However, although the crash was expected, the market is much more volatile than experts anticipated due to the cost-of-living crisis and other contributing factors.

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Whilst currently house prices have still increased year on year, by a rate of 4.7% as of November 2022, the UK’s largest lender, Lloyds predicts prices will fall by 8% in 2023. This is echoed by other experts who have predicted a fall of between 5-10% next year.

Since the announcement, the Bank of England has also raised interest rates by another 0.5%, the ninth consecutive rise in interest rates this year. The base rate of 3.5% is now the highest since 2008. It is no surprise that this rise in interest rates and the crashing housing market has caused concern amongst homeowners, and property investors alike.

But, what does it actually mean for property investors looking into 2023 and beyond? CEO at Redmayne Smith, Gordan Dutfield provides his thoughts.

What does the fall in house prices mean for property investors?

For property investors, the falling house prices may appear concerning at first, with many investors wondering if now is the right time to invest. However, now could actually be one of the most beneficial times!

Whilst, unfortunately, mortgage interest rates are on the rise, prices are still lower due to the drop in house prices overall, therefore those that can afford to invest in property could make significant returns. Coupled with a rental market that is booming, the need for property investment is high.

The rental market

Alongside falling house prices, we are still seeing a major housing shortage in the UK. This is down to major systematic house-building shortfalls, coupled with a fast-growing population. This has led to a low supply of housing in the UK – with a recent Zoopla report revealing that demand for rental property is 46% above average, whilst total supply is 38% below average, leaving a large number of people in need of a home.

With the housing market so volatile, buying a home is not a possibility for many, and therefore they rely on the rental market to find a home. However, with the government missing new build targets for the past three years, the demand for new housing is growing. The National Housing Federation has suggested that England needs 340,000 new homes by 2031 in order to meet growing demand.

The volatility of the housing market, the lack of new affordable housing and the cost-of-living crisis all mean that rental demand is likely to continue to increase. Therefore, property investment is still required and favourable to many.

Should you still invest in buy-to-let?

Due to rising demand, buy-to-let properties still present a great investment opportunity. Whilst property prices are significantly lower, it can be the perfect time to purchase and make a good profit with purchase prices less than usual and rental value higher. Whilst the market is as volatile as it is currently, people are less likely to be committing to buying a home, so the opportunity lies with investors to purchase properties and rent them out – making a good income in the meantime.

Lower acquisition costs for investors, coupled with a strong demand set to remain for rental property means that buy-to-let property is still favourable for investors. It is a chance for investors to buy low and rent higher – making a sizeable profit.

Purchasing off-plan property and contributing to new housing developments aids the housing shortage whilst creating new housing opportunities where they are most needed.

What can we expect in 2023?

As we’ve mentioned, house prices are predicted to continue to fall well into 2023, with experts suggesting they could fall up to 8% in the year. Alongside this, there is still fluctuation in interest rates, with the latest interest hike being 0.5%. Therefore, the forecast for 2023 is uncertain but we can expect to see property investment continue to provide some reliable returns – especially in key urban areas.

It is expected that in the South, London and surrounding areas, property prices won’t fluctuate quite as much as other areas across the UK. Region by region, some will experience more volatility than others, but the key is to continue investing in housing development, to combat housing shortages.

We expect to see investors continuing to add to their property portfolios despite the falling house prices, as we know there is still exponential demand for new housing in the UK. Unfortunately, the housing shortage looks set to continue, and that is a fantastic opportunity for property investors to provide the housing needed through investing in pre-construction homes, which they can get for favourable prices currently.

Whether you are a seasoned property investor or not, the housing market currently might look a little bit concerning. Therefore, it is best to consult investment experts before making any decisions when it comes to your property portfolio. Experts can advise on the best areas to benefit your portfolio and help you make smart choices when it comes to your investments.


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photo of Millie Archer

Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.

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About Millie Archer 142 Articles
Millie is a perfectionist with a passion for property and writing articles. You'll find her researching the latest housing trends and the newest up and coming areas worth investing in. Read more about Millie here.

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