Dani Netzer is associate director and senior underwriter at Blend Network
The UK economy grew by 7.5% last year, its fastest pace of growth in over 70 years. This stronger-than-expected growth put the UK’s rebound ahead of other G7 economies. Here I will explain what the UK’s economic rebound means for the housing market, and what developers and investors should expect to see in the coming months.
The recent announcements that UK economy rebounded with the fastest growth since WW2 made us all cheer that the worst of the overall pandemic economic hit is now behind us. However, as the ‘cost of living’ crisis continues to intensify and inflation keeps edging higher, there are several ongoing concerns over the UK’s overall economic outlook this year.
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According to the IMF’s latest World Economic Outlook published in January, the UK’s growth is expected to slow down to 4.7% this year, before easing even further to 2.3% in 2023. The OECD also expects UK economic output to rise by 4.7% this year and by only 2.1% next year.
The ongoing inflationary pressures have prompted the Bank of England (BoE) to hike rates. On February 3rd, it increased its base interest rate to 0.5% from 0.25%, its second increase in two months and its first back-to-back increase since 2004.
The fact that the move was supported by a majority of five to four of the bank’s Monetary Policy Committee (the minority wanted an even larger increase to 0.75%) and ongoing inflationary pressure means further rate hikes are on the table.
What does the UK’s economic rebound, and ongoing concerns, mean for the housing market? Will the housing market be able to keep its recent momentum?
I believe that while the nationwide housing market momentum last year meant that developers and investors could afford to be ‘less picky’ in terms of the projects they decided to invest in and the development schemes they got involved in, this year’s expected slowdown in the housing market means developers and investors need to be ‘pickier’.
Developers and investors need to be more careful about things such as location, market liquidity, exit and of course build costs.
In my opinion, this year’s ‘closer to normal’ housing market also means that developers need to be more selective about the lenders they decide to work with because there are many uncertainties and headwinds that could come up throughout the build process.
In other words, times like now demand working with a trustworthy lender who is willing and able to demonstrate flexibility when necessary.
The view of a robust yet less frantic housing market this year is also supported by others. According to Rightmove, while the market is expected to remain fairly robust, even if interest rates continue to increase, price and transaction momentum are certainly likely to ease, and the meteoric rates of growth seen this year are expected to slow.
Rightmove predicts that the market will return to ‘closer to normal’ this year and that the average asking price of a home will rise by 5% this year, down from the double-digits seen last year.
Nationwide also expects the housing market to slow this year, citing factors such as the end of the stamp duty holiday that fueled the market last year and higher interest rates.
In its latest UK Housing Market Update published in January, Savills believes the heightened activity may not last many more months citing the fact that mortgage approvals have returned to pre-pandemic levels and the supply of homes coming onto the market for sale has been falling since April.