UK real estate market forecast: Property values to plummet until 2025

Get ready for a major downturn in the housing market! According to real estate group JLL, property prices in Britain are expected to decline by 6% by 2023, followed by another 3% drop the following year. Find out why experts predict no recovery until 2025 and what it means for you. Stay informed and make smart financial decisions today!

According to figures released by real estate group JLL, property prices across Britain are expected to witness a 6 percent decrease by the end of 2023, followed by a 3 percent decline the following year. Despite this projection, JLL emphasizes that the housing market has proven to be more resilient than initially anticipated, demonstrating a notable difference compared to the severe impact experienced during the 2008 global financial crisis. The report highlights that stricter lending regulations implemented post-2008, combined with higher levels of equity, have contributed to minimizing distress in the market.

The observed stability in the housing market leads JLL to predict that UK property priceswill reach their lowest level in 2024, with annual price falls expected in most markets at the year-end. Subsequently, JLL forecasts a gradual recovery in house prices starting from 2025. The report states, "We are forecasting a return to growth in our 2025 forecast as fixed rates begin to fall and we have more certainty on the outlook." While JLL expects fixed mortgage rates to become more affordable as the likelihood of further rate rises diminishes, households will still face higher rates compared to the previous norm for some time.

Recent data from the Bank of England reveals a decline in mortgage approvals for house purchases, indicating a potential decrease in future borrowing. Approvals dropped from 45,400 in August to 43,300 in September, marking the lowest level since January. The ongoing issue of undersupply is expected to persist, with JLL predicting a cumulative shortfall of 720,000 homes between 2023 and 2028.

Addressing the housing market's challenges in terms of supply is crucial for achieving meaningful increases in supply and alleviating affordability concerns. JLL reiterates the need to tackle these structural barriers effectively to mitigate the impact of the undersupply issue.

In contrast to the projected declines, Nationwide's figures, published on Wednesday, show that house prices defied expectations by rising 0.9 percent in October. However, prices remain 3.3 percent lower than the corresponding period last year. The average home price increased from £257,808 in September to £259,423 in October, according to Nationwide's own mortgage lending index. The building society suggests that prices are likely to remain subdued.

JLL highlights a comparison with the market following the 2007 peak, stating that house prices have declined by 5.3 percent thirteen months after the summer 2022 peak. Conversely, during the same period following the 2007 peak, the fall was over 13 percent.

While house prices experience a downward trend, JLL warns tenants to expect further increases in rental costs over the coming years. The report attributes this rise to the imbalance between rental stock availability and tenant demand, resulting in significant rental growth in 2023. Additionally, due to a decrease in new rental stock resulting from fewer completed homes and a challenging interest rate environment, JLL predicts that rental growth will surpass wage growth. In 2024, rents across the UK are projected to increase by 5 percent. London, in particular, is expected to witness higher rental growth due to increased competition for available properties and affordability challenges in the sales market.

Looking ahead, JLL believes that lower mortgage rates starting from 2025 will lead to an increase in tenants transitioning into owner occupation, thereby reducing pressure in the rental market.

In conclusion, JLL's analysis indicates that property prices in Britain will experience a moderate decline before embarking on a steady recovery. Despite the expected falls, the housing market has displayed unexpected resilience, attributed to stricter lending regulations and higher equity levels. JLL anticipates a stabilization in prices by 2024, followed by a gradual upward trajectory in subsequent years. However, the market still faces challenges related to supply shortages, necessitating effective measures to address these structural barriers and mitigate affordability issues.