What's happened? The UK housing market continues to cool down, amidst slowing economic growth. Real house prices (adjusted for inflation) decreased by 4.21% in 2022 in comparison to the previous year, in sharp contrast to the 5.5% annual growth in 2021. It was the biggest year-on-year decline since 2008.
Demand and construction activity. Residential property deals (seasonally adjusted) in the UK fell by 14.9% year-on-year to 1.3 mln units in 2022, after rising by 42.8% in 2021, according to HM Revenue & Customs. In England, which accounts for more than three-quarters of all transactions, residential property sales fell by 15.5% to 1.1 million units in 2022 from a year earlier.
Despite slowing demand, the UK’s chronic housing shortage continues to push house prices in the country upwards, which is exacerbated by a decline in residential construction activity over the past two years due to coronavirus-related restrictions.
The government aims to build 300,000 new homes every year, but in 2021 there were only 216,490 new additional dwellings in England, which is 11% less in comparison with the previous year, according to the Ministry of Housing, Communities & Local Government. Then in the third quarter of 2022 completions of new dwellings fell further by another 4% on a yearly basis to 42,950 units.
Economy. The UK economy grew by 4% in 2022 from a year earlier, mainly as a result of the ongoing recovery from the pandemic-related weakness in 2020 and 2021, according to the UK Parliament. This happened after a huge 11% decline in 2020 and a strong growth of 7.6% in 2021.
Although this year the economy is likely to slow down sharply. The British Chamber of Commerce (BBC) expects the UK economy to avoid a technical recession but contract by 0.3% this year before returning to growth in 2024. The International Monetary Fund (IMF) is a bit more pessimistic, forecasting a 0.6% decline this year.
In February 2023, the Bank of England (BoE) raised its key interest rate by another 50 basis points to 4%, which was the tenth consecutive rate hike since December 2021 in order to meet the 2% inflation target. This is now the highest level since the end of 2008.
Source: Global Property Guide
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