Few people are likely to forget 2022.
It was the year we lost Her Majesty; The Queen and King Charles III took the throne. No 10 had three residents since September, inflation reached its highest level since 1982, and the base interest rate, which sat at under 2% since January 2009, rose to 3.5%. As for residential property prices, house prices fell for the fourth consecutive month in December, the worst run since 2008, according to Nationwide. The lender’s final House Price Index of 2022 showed average prices fell 0.1% on a monthly basis to £262,068.”
The biggest challenge facing the industry in 2022 was what could be considered the fifth horseman of the apocalypse – uncertainty. Loathed by consumers and businesses alike, uncertainty, especially in the chaotic month of October (remember that career-ending mini-budget) caused Zoopla to report a 40% transaction fall-through rate during the tenth month of the year.
We sat down with the Managing Director of OneSearch, Elizabeth Jarvis and Robin Wells, the Head of Sales Operations to discuss their thoughts on what lies ahead for the property market in 2023.
The economic outlook for 2023 – a protracted but shallow recession.
Although the UK narrowly avoided tipping into a recession in 2022, the latest report by KPMG (Dec 2022) estimates a lengthy downturn throughout 2023, but with the overall drop in economic activity being relatively modest when compared to previous recessions. Unemployment is expected to remain low, and inflation is set to fall to 4% by the end of the year and hit the target of 2% by mid-2024. As for interest rates, the Bank of England’s base rate is predicted to reach 4% by the end of Q1, dropping to 3.25% at the close of 2024.
What will higher interest rates mean for households? KPMG conclude that although mortgages are the largest component of household debt in the UK, two-thirds of mortgage debts are held by the top half of the wealth distribution, which is also where excess savings accumulated during the pandemic are concentrated:
“With households paying around £14bn in interest (on mortgages and other debt) every quarter, and the stock of excess savings around £86bn, it would in aggregate be enough to cover a doubling of interest payments over six quarters, effectively getting households through the recession. Unemployment is expected to peak at a relatively lower level during the current recession, meaning more households are likely to retain their main source of income. In addition, households are likely to be less leveraged due to more conservative lending criteria, which saw a fall in the share of high LTV mortgages (at a loan-to-value ratio of 90% and above) to 4.5% by 2022 Q3 compared to a peak of nearly 15% in 2007.”
Robin Wells added:
“The energy crisis plays a big part in the decision to move home. For some, it will practically wipe out the prospect of “up-sizing” and with energy bills set to increase again from April the cost of energy is as big a factor as interest rates when it comes to home buying and selling decisions.”
With the predictions for the overall economy set out above, let us examine what all this means for the property sector and Conveyancers.
A year of real estate market stability and confidence? – It is looking positive
The fact that despite 2022 being so traumatic in terms of uncertainty, as evidenced above, house prices still rose by 5.6% on the previous year. This confirms that there remains an appetite to buy and sell property. And according to our Residential Property Trends Report for Q4 2022, the market sat in a holding pattern at the end of last year whilst buyers and sellers waited to see what the New Year would bring in terms of interest rates and new mortgage products.
With interest rates peaking in the first quarter of 2023 and then stabilising, affordable mortgages will begin to return. In conjunction, house prices should continue to fall levelling up the playing field and bringing confidence to first-time buyers.
Commenting on how stakeholders in the property sector can successfully navigate the first few months of the year, Elizabeth Jarvis said:
“The biggest factor stalling the housing market right now is uncertainty. Interest rates must stabilise, and lenders must be clear about their intentions and lending strategies. Mortgage products need to be open to a wider range of the market and mortgage rates need to settle. House prices are consistently reducing and with all these factors I have no doubt the housing economy will become reinvigorated as the year progresses.”
Tips for successfully navigating a complex 2023 property market
Due to an ageing population and the post-pandemic trend of early retirement, almost every country in the developed world is suffering from severe skill shortages. Combine this with low birth rates and there is no escaping the fact that to compete effectively, law firms, along with many other industries, will need to continue to embrace technology. Research recently conducted and released by OneSearch’s parent company Landmark shows over 65% of senior property solicitors and conveyancers acknowledge task automation has made their business more profitable.
For Conveyancers and legal professionals, affordable and supported technology provides a path to speeding up the conveyancing process and thereby acquiring market share from competing practices. In addition, technology can mitigate risks associated with particular elements of the conveyancing transaction, for example, creating manual reports on title. In today’s marketplace, where dissatisfied clients are usually more than happy to leave harsh Google/Trustpilot reviews, ensuring your conveyancing department has access to the technology-based solutions it needs to provide swift, accurate, responsive client service must be a priority for all law firm managers in 2023.