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Nationwide’s house price index reported at the end of March 2023 that the average UK property has fallen 3.1% in the last year. With average homes in the UK at £257,122, this is the lowest average since the financial crisis of 2009. Falling house prices raise some concerns for homeowners and the overall economy. However, some may see some interesting opportunities in terms of acquiring properties, offering rental accommodation, and potential for investors and property owners.
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Background on House Prices
A report from bridging lender MT Finance explains that “this is the seventh consecutive monthly decline for average house prices, making it 4.6% below their August peak.”
The housing market also experienced turbulence following the mini-budget in September 2022. However, we must consider that house prices have still jumped since the pandemic. For example, average house prices increased around 20% from January 2020 to December 2022. Compare this to only 7% two years prior.
This reflects the so-called “race for space.”
That is, households want more home space to reflect a lifestyle of hybrid working. Meanwhile, there is high demand and limited supply.
A Strong Rental Market
For some households, the fall in house prices will be positive. This is especially the case for first-time buyers trying to get on the ladder and those looking to make the most of buy-to-let and other development opportunities.
A RICS Survey in March 2023 showed that the increase in house prices were causing a 29% fall in inquiries from new buyers and first-time buyers. Hence, it was fueling a very strong rental market consistently across the country.
Initially the stamp duty holiday created strong demand for properties and thus increased prices. The same now appears to be happening in the rental market.
Reports from Rightmove in November 2022 showed that the demand for rental homes in the UK rose by 23% in a year. By comparison, this figure had been at just 1% per year, since 2016.
Based on these figures, it comes as no surprise that a surge in demand for rental property has translated into higher rental charges. In fact, the average rent increased by almost 5% in the last year.
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Potential for Property Owners and Investors with Falling House Prices
There is huge potential for landlords and investors if house prices are coming down and rent prices are going up. This means they are getting a double win. They may use bridging finance in order to complete on properties quickly. This can allow for completion within two to four weeks and avoid potential property chains.
We could see real growth in the buy-to-let area and purchasing of properties such as HMOs, student accommodation, affordable housing, and properties for young professionals.
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