The start of 2023 brought along fears of a catastrophic property market crash not seen since 2008. As the British economy contracted, the Bank of England had no choice but to raise the interest rates to 3.5% and again to 4% to keep up with inflation – resulting in dramatic increases in mortgage rates. Despite the bleak start to Q1, The Office for National Statistics has reported that inflation dropped to 10.1% in January from 10.5 % in December, making it the third consecutive fall in 3 months. In light of this promising news, property expert and Group Chairman of Cornerstone Tax, David Hannah explains how decreasing inflation, if sustained, could lead to a revival of the housing market in the second half of 2023.

The average house price-to-earnings ratio hit a record high in the third quarter of last year, with the average home costing almost seven times the typical salary, according to the Nationwide Building Society. The knock-on effect of the political and economic instability Britain faced in Q4 of 2022 is theunprecedented levels of uncertainty for the market in 2023, which coupled with the increase in inflation has made it virtually impossible for first-time buyers to enter the market. As a result, the demand for housing has become non-existent as many would-be buyers are now pausing until prices fall with the rate of interest. However, according to economic analysts the basic rate of inflation on interest has reached its peak and will begin to fall.

The third consecutive fall in inflation, coupled with financial analysts’ prediction that interest rates have reached their peak, is a welcomed relief for both people working in the industry and would-be-buyers. As a result, David Hannah is confident that despite the drop in house prices at the start of 2023, the fall in inflation could mean the market will see a resurgence in market activity. As interest rates fall – mortgages will become less inflated, and as a result, first-time buyers will be enticed back to the market – bringing stability and confidence to the second half of 2023.

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 demand.

“However, the news that the inflation rate has fallen for a third consecutive month bodes well for the second half of the housing market. The knock-on effect will mean interest rates on mortgages will fall back to a reasonable level and, as a result, will entice first-time buyers back to the market, thus increasing market activity and confidence.

“I have always said that the UK property market has tended to be more stable than any other global property market, and if the rate of inflation continues to fall, I have no doubt we will see a return to confidence and stability for the second half of 2023.”