Market Update Q3 2022

The third quarter of 2022 saw a big turnaround in the UK real estate market. In this article, we explain how this happened, how the market has adapted to these new circumstances, and what will happen next. 

What happened in the real estate market in the third quarter of 2022? 

In the third quarter, the extreme growth of what we have experienced through the Corona Pandemic has now ended. For the first time since the pandemic began, we are seeing a real decline in the boom. 

However, this did not happen overnight but was the result of a long development that started with the Ukraine war and the accompanying inflation. 

To make the contrast clear, one can consider that at the beginning of June, people were toying with the idea of issuing 50-year mortgages that would span generations. In this way, one wanted to make it possible for younger people to pay the ever-increasing real estate prices and to be able to afford a home of their own. In addition, they expected average rent increases that would at least match inflation. 

However, the situation has now reached the point where a significant decline in growth can be observed. It should also be noted that rents in the British real estate market have risen by only 3.6% on average, which is far below the price increase due to inflation. As a result, British real estate investors have experienced a significant loss of rental income in real terms. 

But even this moderate increase in rents, seen in comparison to inflation, is causing major problems for many tenants. At the beginning of the third quarter, it was already estimated that around 820,000 tenant households would be put in a difficult financial situation as a result of this increase. As rents continue to rise, this figure should have increased further by now. These developments are making affordable housing increasingly important for many renters.  

The biggest driver of this development is, of course, inflation, which is partly a result of the Ukraine war and partly a remnant of the Corona pandemic. To combat rising inflation, the prime rate has been raised, causing mortgage rates to rise. The increased cost of a mortgage has reduced demand for property, which in turn has slowed price growth in the UK property market.  

What will happen next? 

Based on the first preliminary figures, which can be observed at the beginning of the fourth quarter, it can be said that price growth on the real estate market will probably be further dampened and possibly even falling prices will be the norm. 

The Ukraine war and inflation will continue to play a large role in the UK real estate market. The government’s response after the turmoil of the last few months will be particularly interesting. The question is what measures the government will take to keep inflation under control. 

There are already many political voices in favor of freezing rents, and calling for further relief for tenants. Of course, this will also have a major impact on the further development of real estate prices in the final quarter.