A year in review: Key events that defined the property market in 2023

It’s been a rollercoaster of a year for the property market. In 2023, property investors and lenders alike have been buffeted by economic declines, shifting legislation, and deteriorating optimism.

But, amongst all the negativity, it was possible to glean some hope from the headlines. House prices, despite all the doom-mongering, have proven resilient. Efforts to get more properties built are on the way, and lenders are starting to truly shake off the mini-Budget.

So much has happened this year, that it would be near-impossible to recount everything that’s hit investor’s portfolios. Still, there were a few noteworthy news items that clearly had more of an impact than others.

In no particular order…

Legislative backtracking

Michael Gove, the Levelling Up secretary, was busy this year. After a long-promised overhaul of the rental market, the Renters Reform Bill was finally introduced to Parliament on 17 May, 2023. The proposals it brought with it were, or are, set to completely upend BTL strategies.

Arguably, the biggest change announced included a planned scrapping of Section 21 notices, which allowed landlords to evict tenants at relatively short notice. The new bill was also set to usher in rules which would allow landlords to repossess properties more easily from anti-social tenants, and give renters the legal right to request to keep a pet in their home.

The bill proved controversial. Many landlords considered leaving the market due to the proposed changes. Although, follow up actions from Mr. Gove may have given some investors pause for thought.

Barely a week after the Bill was unveiled, he backtracked on plans made for the student let market. Mr. Gove also rowed back on gas boiler ban plans, while many believe he watered down plans to upend the leasehold system.

Planned Energy Performance Certificate (EPC) legislative changes also faced a dramatic upheaval in 2023. Under the original plans, all landlords would have to ensure their properties had a minimum EPC rating of C, rather than the current minimum of E. The new minimums were set to come into play from April 2025 for new tenancies, and April 2028 for existing tenancies.

But, by mid-2023, a consultation from Department for Business, Energy and Industrial Strategy proposed pushing the 2025 deadline to 2028. Eventually, and arguably shockingly, the government scrapped its plans to enforce minimum EPC ratings entirely.

All this shows that property investors may need to keep on their toes when it comes to state policy. Assured plans today may become irrelevant tomorrow.

A slow but steady economic recovery

It’s been a tough few years for the economy with a direct impact on the property market. Although, 2023 could actually be defined as the year of lowering prices.

The cost-of-living crisis may have been a 2021/22 phenomenon. Inflation skyrocketed with the CPI peaking at 11.1% in October 2022. But, in 2023, inflation has been consistently slowing. As of October 2023, CPI sat at 4.6%. We still have a ways to go until relative normality is restored. But at least it looks like we’re on the right path.

Nevertheless, 2023’s tentative recovery has been hard won. The Bank of England continued to push the base rate upwards throughout the year. This, of course, raised costs for businesses and borrowers.

This spooked lenders, who were still haunted by the Liz Truss fallout. Starting in January, mortgage providers began pulling their products. This continued into the summer months, forcing many borrowers to seek out 35-year terms.

Fortunately, we’ve seen confidence return in recent months. The number of mortgages available has almost recovered to pre-September 2022 levels.

One of the key indicators for measuring all this is, of course, house prices. One may assume that in this regard, things have rarely been worse. And while it’s true that there have been price declines, overall, we’re in a healthier position than many would believe.

House prices are measured by various indexes but arguably, the ONS’ index is the most accurate. According to official Land Registry data, the average property price in the UK in January 2023 was £286,321. By September, it was £291,385. A slight, yet important increase.

Yes, house prices in aggregate have barely moved this year. But, this is a much better outcome than the apocalyptic quotes previously predicted.

An apparent exodus of landlords

Despite the positive statistics though, some property investors faced more difficult circumstances than others in 2023. Chiefly, this concerns landlords.

Rising costs, an increasingly hostile environment, and difficult legislative changes forced many landlords to sell-up this year. The media and the trade press, dramatically, dubbed this a landlord “exodus”.

This also had a knock-on effect for renters, creating a lot of uncertainty in the BTL scene. Unfortunately, much of this uncertainty may continue into 2024.

But, many landlords still planned to expand in recent months, and their timing may have been fortuitous. In a desperate attempt to exit the market quickly, some landlords were willing to let their properties go at a substantial discount.  Entrepreneurial property investors likely bagged several bargains this year, securing healthy yields in the process.

Spring Budget and Autumn Statement

Jeremy Hunt, in his mission to get the economy stable again, hasn’t unlevelled any groundbreaking plans this year. In fact, his Spring Budget contained little-to-none housing announcements.

But, there was a bit more news in the Autumn Statement. Going forward, we can expect major benefit adjustments, a cut in National Insurance, and various tax changes. Property and/or housing wise, we saw the Mortgage Guarantee Scheme extended into 2025, £110m set aside for new home developments, a removal on a Local Housing Allowance freeze, and plans to allow easier conversions of houses into two flats.

Reactions were mixed. Some pundits and experts felt the Chancellor missed an opportunity to make substantial changes. While others welcomed what was announced. It remains to be seen if what’s on the way will make up for what’s deemed by many to be the most dramatic reversal from the state.

The infamous 300,000 target

The Government’s own target of building 300,000 new homes every year went from mandatory, to “advisory” in late 2022. As we moved through 2023, it was confirmed that the housebuilding target was scrapped as a result of backbencher pressure.

This led to more criticism being levied on the state which, has not come close to the 300,000 target since at least the early 2000s. This year has capped off a difficult period for the current government, which is trailing the opposition.

With a general election potentially happening as early as spring 2024, property investors may need to adjust a Labour government over the coming months. A party with entirely different plans for the economy, taxes, and the property market.

If 2023 has shown anything, it’s that property investors and lenders alike should always be ready for the unexpected. Flexibility is crucial in a market where legislation may change without notice, and sentiment can remain subdued even in the face of a recovering economy.

As always, MFS will be there for investors who remain optimistic in the face of uncertainty. We’re sure we’ll look back on 2024 this time next year with nothing but positive news to review!