Yes, it’s that time again when the property hoi polloi impose their predictions for the following year on us and so, without further ado, I’ll join in too if I may…

Trying to forecast anything political or housing sector related has ended up being laughably inaccurate in recent years. All sorts from economists, banks, top-drawer property firms and the Office for Budget Responsibility have repeatedly pinned their tail to the donkey of the UK economy and have not just got their musings wrong but have spectacularly missed the very wall that the donkey image was even attached to. 

Think back to the spectre of Brexit and the predictions from the remain side of that argument whereby leaving the EU would result in floods, pestilence and volcanoes erupting or similar. I jest a little, but you take the point in that Brexit and then the later shenanigans of a possible ‘no-deal Brexit’ were cited as representing financial Armageddon. One prediction by Mark Carney, the former Bank of England Governor, was that house prices might drop by 35%. This certainly put the cat amongst the City pigeons and resulted in billions of pounds being wiped from the value of property companies nationwide.

Then Covid. Similar crystal ball gazing told us that the pandemic would bring about a fiscal ice-age and that the property market would all but disappear into a snowdrift somewhere north of Lapland never to be seen again.

These sentiments or rather guesses as I like to call them, turned out to be very, very wrong as property values since David Cameron’s 2013 promise of a referendum on European Union membership have since risen by 78% despite the prevailing headwinds. That’s almost 9% each year. Oops. 

So I will tread carefully in my evaluation of what 2023 has in store for us as property owners and landlords and would urge you to not hold my feet to the fire too closely if my suppositions turn out to miss the target a little (although seemingly I will never be as inaccurate as successive, highly paid Bank Governors). 

Property Sales Values – will not crash. A slight weakening perhaps but mortgage rates are settling down, demand is still pretty strong and purchase stock is as short as ever. I predict no more than a 5% drop in values in H1 2023 and this will correct to end the year flat overall.

Interest rates – The Bank of England base rate will peak at 4% – not so bad in relative historic terms. Of course, fixed rate mortgages are priced from Gilt yields and these are already back to August levels and so buy-to-let fixed rate mortgages will drop to sub-5% in Q1. Perhaps even sub 4.5%. 

Transactions – sales volumes are rarely discussed in the media but they are important in analysing the health of the market. ‘Normal’ is around 1m annual transactions with 2021 seeing 1.4m due to government intervention to prop up the market. Next year will be leaner than normal as sentiment in the first few months continues to be bashed. However, the Annual Statement by Jeremy Hunt hid in the small print the fact that SDLT thresholds will drop down to 2021 levels in 2024 and so there will be an enthusiasm from buyers in order to save on the tax.

Rental values – +10% in 2023. A shortage of available properties to rent and even more demand from those not buying instead, wil keep values and therefore landlord yields higher. 

Section 21 – In recent weeks we have seen the latest government run scared of its backbenchers on such issues as new build housing targets. I suspect no such luck will be had on the question of Section 21 and its abolition. Expect S21 to be removed and for beleaguered landlords to have to fight harder for appropriate possession by the summer.

EPCs – Sometimes when Whitehall hasn’t got its act together it’s a good thing. In the case of enforcing a ‘C’ EPC rating on millions of landlords, this policy still seems up in the air and may well fall through the cracks – especially if we have a few more housing ministers in the next 12 months. Rest easy, you won’t need to spend that £10k on retrofitting that new boiler, windows and insulation just yet.  

Arrears and Possessions – the backlog in the courts system will crack and force the government to bring in drastic measures. Those rumored Housing Courts will come to fruition and assist a swifter means of regulating right and wrong in the rental sector.

Rent Caps – our beloved London Mayor, Sadiq Khan, continues to crow for rent controls in the capital, a power that fortunately he does not have. He is as likely to be given it by Rishi Sunak as I am to win a gold medal for synchronised swimming. This is one anti-landlord policy that won’t see the light of day in ‘23 – if ever.

In summary, landlords will be ok next year. No housing crash, no double digit interest rates, higher rent and therefore higher yields (to easily accommodate increased interest rates) and, one hopes, nothing more to contend with in government policy terms over and above what’s already been announced.  Actually, I would proffer 2023 Q1 would be the time to snap up another property…and benefit from the only remaining Kwazi policy of zero, standard stamp up to £250k!

It’s still a good time to be a landlord, all things considered, and it will be throughout 2023. Meantime, Happy New Year from all of us at Benham & Reeves. 

PS: Do you agree with my predictions? Do let me know in the comments.    

* Marc von Grundherr is Director of the London and International Estate and Letting Agency, Benham & Reeves *