Britain’s continued recession coupled with the cost-of-living crisis have meant the domestic housing demand has taken a dramatic hit. At a time when interest rates are rising, and predictions for the housing market continued to worsen – HM Revenue & Customs reported that residential transactions in January 2023 equated to 96,650,which was 11% lower than January 2022. Despite this notable drop-in domestic activity from the lower end of the market, housing specialist LonRes reported that Between 1 December and 31 January –agents closed 30 property deals in London worth £10m-plus. This was 43% more than in the same period a year earlier. Housing expert, David Hannah, Group Chairman at Cornerstone Tax, discusses why foreign investment in 2023 will remain strong and what this will mean for the future of house prices in the UK.

This notable difference in activity from the top end of the housing market is testamentto the fact that Britain’s housing market has become an attractive investment for wealthy overseas buyers since the disastrous ‘mini budget’, which slashed the value of sterling overnight. The financial difficulties of the domestic population – including rising interests and a lack of affordable properties – are not shared by those that can afford property at the higher financial end of the market as they are usually buying homes outright and are not affected by expensive mortgage rates. As a result, demand has remained strong for properties in the most affluent areas of London – reports show that more than 50 London neighbourhoods saw activity in the over £5 million price range in 2022, with the reach of this price tag likely grow even further in 2023.

The continued market activity from wealthy overseas buyers does have its benefits in keeping the market active at a time when domestic demand is down, however it does have its flaws. London is set to see the highest price increases in the country over the year at 5.5% and the influx of foreign wealth into the city will mean those on the lower financial end will struggle to maintain their cost of living. Rents in London are already up by 9.1% compared to last year and in 2022, 90,370 tenants left London compared to 62,210 homeowners moving out.

David Hannah, Group Chairman at Cornerstone Tax, explains:

“Unsurprisingly, we have seen a fall in house prices at the start of 2023 – this is primarily due to the increasing cost of living eroding people’s spending power. There is also a large number of would-be-buyers who are waiting for house prices to bottom out, resulting in lower domestic demand.

“Interestingly, what has emerged in the housing market, is the renewed interest from overseas buyers who appear to be capitalising on the weakened pound since the mini-budget.

“As a result, whilst the majority of the markets are seeing a slowdown of activity, sought after cities such as London are seeing a continued rise in prices. I believe this will transpire to be a key factor in terms of keeping the wider UK housing market buoyant throughout the second half of 2023.

“However, the continued rise in prices will mean those living in cities such as Londonwill struggle to keep up with inflation and the cost of living, and we have already seen an exodus of those living in capital.”