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Six things to expect from the residential sector in 2023

by | Jan 23, 2023

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Written by Jamie Pritchard, Director of Sales, Glenhawk

It is safe to say that 2022 was a year like few others in modern history.

When you consider the five different housing ministers, four chancellors of the exchequer, three prime ministers, double digit inflation, house prices dipping at the fastest level since 2008 and borrowing costs spiralling, one would joke that they couldn’t have made it up. 

So, can we expect 2023 to offer more stability to the residential sector? Here are a few likely trends that we should see materialise.

  1. Property investors will still target buying opportunities 

Yes, the economy will contract for at least the first quarter of 2023, with inflation still much higher than the targeted 2% and the Bank of England seemingly determined in its efforts to put the genie back in the bottle.

However, many opportunistic property investors will recognise that a five to ten percent dip in prices over the course of 2023 opens the door to acquire at more attractive valuations. Despite the fall many are predicting, it is important to remember that house prices are already inflated beyond where they perhaps should be. This is largely a result of government policies from two years ago, such as the stamp duty relief, overheating the market, and now the current macro environment is likely to undo that surge.  

After all, property investors with money under their mattress won’t just shut up shop. They will instead look further afield across the country for acquisition and development opportunities as the market becomes increasingly favourable for buyers, rather than sellers. At the same time, expectations will need to be managed given borrowing costs and price growth. Investors should probably expect returns to average around 20 percent in terms of yield on cost, rather than 30 percent when we had runaway house price growth and cheap credit.


If anyone does exit the market, it will likely be the smaller landlords who are feeling the pinch of the current tax environment if their holding is through a personal vehicle. 

  1. First time buyers will still be squeezed

We are not building anywhere near the number of homes required to satisfy demand in this country, and government plans to legislate a housebuilding target have hit another unfortunate roadblock following the recent Tory party rebellion. What this of course means, especially given how the number of second homeowners has surged in the past couple of years, is that the average age of the first-time buyer will go up this year. Rising construction costs will hinder the delivery of new homes, lenders tightening their purse strings and higher interest rates will continue to challenge affordability levels, all whilst households grapple with the cost-of-living crisis. 

  1. A BoE base rate standardisation by Q2

The Bank of England base rate will hopefully settle once it hits 4 percent in the second quarter of the year, simply because the economy cannot realistically revive hopes of growth if it is any higher. But as swap rates come down, landlords owning single family let homes will still struggle to remortgage at any LTV level above 60 percent, with Buy to Let investors also facing more stress testing from lenders. The recent rise of variable rate mortgages will continue into the early part of next year until rates are stable. 

  1. Lenders will diversify

Overall lending levels will be more muted in 2023 and a more diversified product range will be necessary to support performance in a volatile macroeconomic environment. Back in 2008, the lenders who diversified gave themselves the most chance to survive, given that fewer opportunities were around. So, we can expect to see more lenders enter regulated bridging, commercial property financing, as well as solutions for multi-unit and HMO assets. This however does not mean that lenders should dilute their expertise by entering unknown areas such as insurance, given that their clients won’t appreciate the drop in service quality in the rush to diversify.

  1. Lender forbearance 

We can probably expect more lenders to show a degree of forbearance, which would mark a significant change compared to 2008 when many of them repossessed houses if a borrower defaulted. This year, forbearance will be especially relevant in the third and fourth quarters, when many cheap Covid era fixed rate mortgages expire.

  1. Clarity on EPC regulations

What landlords, developers and lenders desperately want is a housing minister to address issues such as EPC regulations, so that firm plans can be made. Currently, we are left to speculate, given the minimum EPC rating proposals are in the consultation phase. If official requirements and deadlines are announced, that would enable lenders to offer more green products, as well as encourage innovations to help improve the environmental credentials of homes.


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