Experts are forecasting a property market dip. Find out what this means for you

Experts are forecasting a property market dip. Find out what this means for you

With the UK poised on the brink of a recession, many experts are now forecasting a property market dip next year.

Property prices have increased significantly over the past few years, setting various records despite the economic turbulence caused by the Covid-19 pandemic. In fact, according to the UK House Price Index, the average UK house price reached yet another all-time high of £292,118 in July 2022 when data was last available.

However, the UK economy shrank by 0.1% in the second quarter of the year, and many analysts are now predicting a recession. In fact, as reported by Professional Adviser, investment and banking giant Goldman Sachs has forecast a recession in the UK to last until 2024.

As a result, there are concerns that this could negatively affect the property market over the coming months.

So, find out what the experts are saying about the prospects of the property market, what it might mean for you, and how you can manage your money in these circumstances.

Predictions vary across experts, but many are forecasting a dip

To begin with, let’s take a look at what some of the experts are saying.

As reported by consumer rights group Which?, some of the largest estate agents in the UK are concerned that the property market will stagnate or indeed decline in 2023.

While Knight Frank are anticipating a cautiously optimistic 1% rise, Hamptons have predicted that average prices will largely stay the same, with Savills forecasting a 1% fall in values.

Similarly, Santander’s chief economist was quoted in FTAdviser in June after forecasting “zero growth” in the new year, expecting the market to achieve just 2% growth by the end of 2022.

Meanwhile, one mortgage broker firm founder is taking a particularly pessimistic outlook, according to the Times Money Mentor, predicting a 10% decrease in UK house prices within the next 12 months.

As you can see, there’s by no means any consensus as to what will happen to house prices, although there is one common thread between them: while prices might not necessarily fall, the rate of growth seen over the past couple of years will likely decline.

Properties you own might decrease in value

So, what does this mean for you? The most obvious way that a property market decline might affect you is that any properties you own may decrease in value. This includes any homes you live in, as well as any investment properties you may have.

One of the most present dangers here is that of “negative equity”, in which the value of the property is now less than the remaining value of any mortgages you used to purchase it.

In this instance, selling a property with negative equity might see you realise a loss on the value of it.

Of course, it’s worth noting that in the short term, this may all mean very little to you. The price of your properties is somewhat abstract, as the fall in value isn’t realised until you come to sell one of them.

So, if you aren’t intending to move home in the short term, a dip in the value of your property may not be an issue.

Meanwhile, for investment or buy-to-let (BTL) properties, this issue may affect you differently, depending on where you are in your career.

For example, if you in the middle of your career and investing for capital growth, a short-term dip in value will likely not affect you for the time being. This is because the value of the property could rebound and increase over time – find out more about how the property market has behaved historically below.

On the other hand, if you’re looking to access the value in your properties to provide an income in retirement, this may see you receive less than you might have expected from your sale.

You may want to factor considerations like this into how you manage your properties moving forwards.

3 things to consider doing in the face of falling house prices

These predictions might seem concerning, especially if you have a portfolio of BTL properties.

If you’re worried about what falling house prices might mean for you, here are three things you could consider doing.

1. Don’t panic and hold tight

If you aren’t intending to buy or sell property currently, it may be a sensible course of action to sit tight and do nothing for the moment.

Consider the way that average house prices have moved since January 2005:

Source: UK House Price Index from the Office for National Statistics, July 2022

Even with the 2007/08 financial crisis and the severe economic downturn after Covid restrictions were imposed in March 2020, the average price of a UK home has still continued to rise over time. That means, in similar historical periods of financial difficulty, property prices have rebounded and increased in the long term.

The past performance of any asset doesn’t guarantee what will happen in future, and property prices could fall below current levels for an extended period.

But, with a market that typically grows in value over time, and falls in value being hypothetical until you realise them by selling a property anyway, you may be better served holding tight and not doing anything for the time being.

2. Consider buying the dip

Of course, falls in the market might even present an opportunity. So, you could consider looking to “buy the dip” in the property market.

Average prices falling may make a property investment more suitable for you. It might allow you to purchase property at a lower price, especially considering how the market has reached consecutive all-time highs over the past couple of years.

As a result, a dip may be the right time for you to start or make an addition to a property portfolio.

Please note, however, that there’s no way to accurately predict when the bottom of the dip will be. That means you may end up starting a purchase that immediately loses value if the market continues to fall.

Indeed, there is no guarantee you will see an increase in value on that investment. Make sure you take adequate advice if you intend to do this.

3. Review and consolidate your wider financial situation

Another sensible decision you can make is to review your wider finances, such as other savings and investments.

In difficult economic circumstances like these, it’s crucial to check that your wealth is properly organised so that you and your family are able to continue living the lifestyle you want.

This will offer you greater peace of mind over your money, giving you confidence that you’re financially secure regardless of how the property market moves.

Speak to us

If you’d like help organising your finances from a team of experts, please do get in touch with us at ProSport.

Email or call 01204 602909 to find out what we can do for you.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home.