As Q1 of the UK’s housing market begins, it takes with it the hangover of the 2022 cost-of-living crisis and a financial recession, which has resulted in the continued hiking of interest rates. They currently stand at 3.5%, which has had a knock-on effect on market analysts’ confidence in the endurance of the UK’s housing market. We are now briefly seeing traditional UK hubs for property investment, such as London, face uncertainty over property valuations – triggered by the political instability, fractioning international relations, and September’s mini-budget. Housing expert, David Hannah, Group Chairman at Cornerstone Tax, discusses that despite the recent wobble of uncertainty in the UK market, foreign investment in 2023 will keep Britain’s housing market buoyant.

In light of the political and economic instability Britain faced in Q4 of 2022, this has caused a knock-on effect on the levels of uncertainty for investors. A recent data report by MSCI Inc found that cross-border investment flows to properties in London totalled £12.4 billion in 2022 as foreign dealmakers accounted for 57% of real estate capital, compared to foreign investment in the city in 2015, in which 65% of investment was accounted for by foreign investors, totalling £ 30.5 billion.

Despite the retreat in foreign investment due to the instabilities of 2022, the Office of National Statistics has shown a slight increase in house prices by 0.3% throughout the UK in Q4 of 2022, with investment in London remaining the exception – mainly due to domestic homeowners in the city being reliant on mortgage debt with average loan-to-income ratios and total mortgage costs far higher than the rest of the UK.

In keeping with the ONS’s findings of slight growth in the rest of the UK market, Cornerstone Tax experts expect low/mid-single-digit growth between 5-8% in 2023. This growth will be primarily led by the reintroduction of foreign demand due to a decline in the price of Sterling as the housing market became 10% cheaper for foreign buyers. This will mean central hubs for investment, such as London, will begin to draw back investors and that the market will remain buoyant even if domestic activity continues to fall. Serving as a testament to this, overseas investors now own around £90.7bn of property in England and Wales.

David Hannah, Group Chairman at Cornerstone Tax, explains:

“We have faced a massive set of instabilities. We’ve had two years of the pandemic, necessary pandemic spending, we’ve had the war in Ukraine, and that has increased inflation which has led to a massive increase in interest rates. Recent government policy in the UK has led to a devaluation in sterling and at least one, if not two, regime changes in the conservative party. All of these factors have added to a sense of uncertainty about what will happen in 2023.

“In early 2023, we will see slow demand. Only those people forced to sell will see a slight fall in prices; however, over the whole of 2023, I expect to see low to mid to single-digit growth over the UK property market- between 5-8%. Despite the negative headlines that we have been seeing, there is an underlying pressure on the market, and that is leading to upward pressure on prices.

“We now have a growing number of people that want to move to the UK. The first is the overseas investor who regards UK property as a haven for their money because the country they principally live in is not economically or politically safe. The second are those who want to become second homeowners. The third and final group is those who want to leave their country of birth and are in need of a home. All of these factors over the course of the next 12 months, I believe, are what will support the UK market and leave it with a modest and steady rate of growth.

“There will be NO continuous retreat of foreign investment out of London and the rest of the UK. With sterling remaining relatively cheap, properties in London and other major UK cities will still be seen as sought-after investments. The UK property market has tended to be more stable than any other global market in property.”