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4 predictions for the London Housing Market in 2023

Hello! We hope you are well and we wish you a happy, healthy and prosperous New Year!

In this post, we discuss 4 widely held predictions for the London Housing Market in 2023 (along with our thoughts on each point). So without any further delay, please do read on.

1. The Rental Market will slow down

Many property experts are predicting that rental price rises will significantly slow down in London between a range of 2% to 5% rise or even reverse (ie drop by up to 5%). The main reasons for these predictions are as follows:

- Prices have already risen by between 10% and 17% (between the start of 2022 and the end of it).

- The cost of living crisis has begun to bite for most tenants (since the 4th quarter of 2022).

- Fewer Tenants are moving into London from other areas (as they can work from home in a more flexible way).

There are however other experts who argue that prices will continue to rise at a high rate into 2023 primarily due to a long-term lack of properties and an increase in demand from overseas tenants (students and young professionals) adding to the demand from local tenants.


During the last 2 months of 2022, we have seen a gradual slowing down in demand from tenants and we have seen this continue into the first half of January 2023. To be clear, this is not a negative decline in demand, instead it is a slowing down of the rate of growth of rental prices (albeit in a short timeframe so far). We agree that the cost of living crisis and the rate of rental growth so far (in the last 18 months) is impacting on price rises as there is only so much that prices can rise at this rate (10-15% year on year ). before it becomes unsustainable. However, we also do not believe there will be big decline in rental prices primarily for the following reasons:

- More private landlords are selling up (due to increased taxation and legislation) and this is naturally leading to more pressure on prices for the remaining stock.

- More landlords are having to increase their rents due to an increase in their mortgage costs and if they cannot sustainably increase the rent - they are also selling up and again this is putting more pressure on rental prices. - There will be many more first-time purchasers who will reluctantly continue to rent - as they wait for interest rates to stabilise - adding more upward pressure to rents.

- The government (and this is the big one) is still not building the right type of homes in the right numbers (as council owned homes for rental) and this is continuing to impact rental prices in the Private Sector (as it has been for over 3 decades). So weighing up both arguments (a price correction vs continuing large increases), we firmly believe that they will somewhat cancel each other out and rents will stabilise or increase slightly over the next 12 months (by about 5%).

2. Inflation will remain high

Most economists are currently stating that they believe that the current rate of inflation is here to stay for longer than envisaged. Various sources have stated that consumer spending (averaging a 5.5% increase year on year) has failed to keep pace with inflation during the Xmas period (averaging 11% year on year).

Many economists are also suggesting that the labour markets are still very much tightening (with many redundancies and/or lack of hiring planned) which is then leading to many consumers curbing their non-essential spending which in turn will have a major impact on many high street businesses - most of which have no choice but to increase their prices (and reduce their costs) to survive.

The general consensus (currently) is that the current high rate of inflation will continue well into 2023 and may only ease down gradually as we approach 2024 - with a minority stating that inflation may drop dramatically in the 2nd half of 2023.


Whilst we are by no means trained economists here at Courtneys, our opinion on the inflation subject is that it is just too early to call the top of the inflation curve as there are a multitude of factors that affect it such as global energy prices, the war in Ukraine, Supply chain issues, labour shortages, wage rises, redundancies etc - which all still have to play out for at least a few months yet.

In summary, we believe a best-case scenario in 2023 will be a year on year inflation rate of around 7% (which is still considered to be some progress given the current rate of inflation). But please do not quote us on this.

3. Interest rated will keep rising

This subject is naturally very closely linked to the rate of Inflation with the bank of England's main long-term objective being to reduce inflation to around the 2% mark. The Guardian writes: "The central bank has increased interest rates nine times in less than a year from 0.1% to 3.5%, increasing the cost of borrowing to businesses and households and forcing them to spend less."

The financial advice website Unbiased also notes that: "The general consensus is that mortgage rates will gradually decline throughout the year, even if interest rates go up. Some predict that fixed rates could fall below 4 per cent by early 2024. The reason is because most lenders priced in higher future interest rates in response to then-chancellor Kwasi Kwarteng's September mini budget proposals, which contained £50bn of unfunded tax cuts. This shook the mortgage market, with rates rising to levels not seen since the 2008 financial crisis. Rates have marginally reduced since - largely because current chancellor Jeremy Hunt reversed most of Kwarteng's measures - and many lenders are still reviewing their prices."


We are of the opinion that IF the general rate of inflation shows signs of improvement by around mid-2023, then the BOE will first stop the gradual increase of interest rates (peaking at around 5% and then very very gradually reduce them over the next 2 years (so as to avoid creating another housing bubble/boom in the short to medium term at least). Either way, we cannot see BOE interest rates reducing to almost zero again for many many years, if at all.

4. The Sales Market is going to crash

And so we now get to the main topic of dinner parties up and down the country - all the time (regardless of the economic climate).

Due to the factors mentioned above (cost of living, inflation, recession, job insecurity and interest rate rises etc) naturally every expert is predicting a correction in the housing market (especially in London). The rate at which they believe prices will drop in London (during 2023) vary from 5% as an optimistic prediction to 15% at the other end of the scale. London being London, it always drops the heaviest in downturns and rises fastest in upturns in the market.

What all the property experts agree on is that the biggest driver of house price reductions in London will be the medium to long term cost of servicing a mortgage and so the recovery of house prices will only commence when interest rate rises hit a peak.


We largely agree with the sentiments listed above in that prices will flatline in London generally or reduce (depending on the area). We do not believe they will drop by as much as 15% across the year but rather by around 6-8% (generally in London) and our reasoning for this as follows:

- Some lenders will gradually offer better fixed rate terms (even to first time buyers) to capture a larger share of the mortgage market as volumes dwindle.

- As a result of more favourable rates gradually being offered, so more and more first-time buyers and general home movers will enter the market again in the belief that we are nearing the bottoming out of the market.

Our caveat to this prediction is that any recovery in house price growth will be very gradual with an initial flatlining of prices in the second half of 2023.

We hope you have found this article to be useful and we would like to point out that as with any predictions, our opinions above are mere predictions and are not statements of fact. Going forward into 2023, if you have any property requirements (to sell or let) we recommend that you seek out sound advice in advance from a responsible estate agent who is experienced in creating the right balance of market realism whilst also highlighting the unique features of your property to achieve best results for you in an agreed timeframe. You can contact us on: 0207 275 8000 OR We look forward to being of service to you.

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