Housing activity market tracker Q4 2022

08 February 2023

How can the UK create more affordable housing and resolve the rental property shortage?

The pressures of the cost-of-living crisis paired with high interest rates and unaffordable first time house prices has resulted in a decline in housing activity and added further concerns regarding the shortage of rental properties.

The fourth quarter of 2022 shook the foundations of the housing market. Following years of growth and more than a decade of missed housing targets, we are now faced with a decline in consumer demand and a pause on housing developments across the UK. The Bank of England (BoE) base rate is at its highest in 33 years, impacting mortgage applications, resulting in a rush within the market to renew existing mortgages and many mortgage products pulled from the market overnight.

Building activity was further exacerbated as developers were faced with soaring material and energy prices and on-going labour shortages.

What do the statistics mean? and what policy areas will help the UK to unwind the chronic lack of supply and affordability?

National and regional average house price

Looking at the fourth quarter of 2022, average house prices across the regions fell by around 1%, with all regions trending downwards. The 12 month view across 2022 represented growth for every region with the exception of Scotland.

The past two years have seen a sharp increase in property prices driven by investors and cash buyers seeking low risk investments during unstable markets and increased activity of re-location sales as the working environment changed. Excessive buyer demand culminated in bidding wars pushing those buyers reliant on high LTV mortgage out of the market. Amongst the chaos caused by September’s mini budget, the weak pound made properties at the higher end of the market more attractive to overseas buyers. Areas such as London and the south east remained attractive as longer term investments.

The increase in property prices continued into quarter three of 2022, as a result of cash investors flooding the market and re-location creating artificially high values which were set to fall as the market settled, but with the reduced demand this has seen a much deeper fall in value. Over a three year historic period with a predicted further fall in values during 2023, house prices have seen unprecedented uplift in values. First time home values are at an all time high, raising the question as to how first time buyers can afford to get on the ladder without more government incentives?.

During this period, Zoopla reported that new buyer demand had reduced by a fifth and RICS stated demand had fallen to its lowest level since 2008.


October saw a final flurry for buyers, with last-minute negotiation on price reduction taking place to save housing chains and preserve mortgage rates. Buyers rushed to complete before mortgage offers expired. Sale volumes fell in the final quarter of the year following this wave however, the true decline in activity is yet to be seen as some completions remain slow to get over the line distorting activity in the last quarter.

RSM’s economic analysis of the budget highlighted a 7% drop in real household disposable income on the horizon, limiting households ability to save for deposits or fund the cost of the next move. Consumer uncertainty over future earnings and disposable income has resulted in many households delaying the next move up the property ladder.

A combination of high first-time property prices and shortage of senior living housing has resulted in increased multigenerational households across the UK. This has caused a reduced stock of family homes being available for buyers looking to purchase. This has further compressed the affordable home availability for first time buyers.

The UK remains in a housing crisis with fewer homes than required being built and the need for government to drive the new planning reforms to be adopted and implemented at the required pace. Many developments have received planning permission, contributing to the local authorities housing targets however these homes will never be built due to location, lack of amenities and community pressures. An overhaul is essential to focus and administer local authorities, ensuring creation of new homes in the right areas and at the right volumes removing old planning permissions that are contributing to previous targets.

While brownfield sites are a key component of creating new homes, the UK has vast green areas and the capability of increasing housing volumes significantly.

December 2022 saw the Department for Levelling up Housing and Communities release a consultation paper on its upcoming planning reforms, the tester is now how long it takes to implement and review the new reforms, the housing market so desperately needs.

Buy-to-let sell off? Or a market of opportunity?

The buy-to-let market is an important part of the jigsaw and one area to watch in 2023. There is no shortage of reasons for landlords to consider exiting the market. Rising costs in the form of mortgage and tax and other legislation such as compliance with Energy Performance Certificate (EPC) regulations will require capital and a plan to re-home those residents in the short term to allow works to take place. While material prices have stabilised, labour remains a challenge and the cost to bring properties up to the required standards will inevitably put pressure on the landlords and investors and drive rent prices up in the market. Increased interest rates have and will continue to push up demand for rental properties as some landlords exited the market and rental stock contracts, creating a perfect storm for a shortage in affordable homes rented or owned.

Scotland hit the headlines in October as the introduction of a temporary rent freeze and a ban on winter evictions carried through parliament. Beyond March, rent increases are capped at 3% or on appeal to 6%.

The Scottish Association of Landlords have identified the consequences on rental availability as loss making stock being sold and have started the process to challenge the Scottish Government in court. The question remains on whether investor appetite from further afield has been dampened in Scotland?

Senior living provides opportunities

We expect to see an increase in investment for senior living in the coming years. By 2040 in some areas, those aged 65+ will account for 30% of the population in many areas. There will be a shift towards this demographic renting and paying a management fee akin to build-to-rent and selling oversized family homes. Many other countries lead the UK in the supply of senior living and bespoke retirement developments.

The mortgage market

The data shows lenders are significantly tightening their belts in the aftermath of the ‘mini budget.’ Following Kwasi Kwarteng’s statement on the 23 September, the mortgage market was rocked. The following day, over 40%of the available mortgage products were pulled, marking the highest fall in mortgage products since record keeping began and demonstrating a clear desire for lenders to reduce the fixed rate products.

With the average household seeing a significant reduction in disposable income as a result of inflation, food price inflation was 16.8% year on year in December – the highest since modern records began. Many households are worried about their up-coming mortgage renewals. It is estimated that over a fifth of UK households will face higher mortgage payments by the end of 2024.


Lenders tightened their lending criteria as the economic outlook worsened. The drop in demand is the driver behind the drop in mortgage approvals. Higher interest rates have led to buyers putting plans on hold with first-time buyers being hit hard. Throughout October the market saw the number of available mortgage offers at 95% LTV halved compared to the start of the year. The sudden nature of increases will have caused many to reassess and limit affordability.

Coinciding with this strain, March 2023 brings an end to the Help to Buy Scheme. Some large housebuilders have publicly stated the adverse impact the end of this scheme will have on trading, with 20% of sales being dependent on this scheme. Earlier in the year, we highlighted the Construction PMI drop below 50 representing a tipping point for the industry.


Following the surge in mortgage rates which peaked at over 6.6%, we have seen a rebalance to average two and five year mortgage rates dropping below 6%. With mortgage rates averaging 5.6% between 1995 and 2022 following an all time high of 8.87% in September 1998 and a record low of 3.59% in November 2021 (data from trading economics), first time buyers had been able to secure fixed term mortgages at 3-4% before the increase in the BOE base rate. With the reduction in fixed term periods, high house prices and increased mortgage rates. becoming a homeowner may become an impossible reality for many people.

RSM Predictions

  • House prices will continue to fall in 2023 and into quarter two of 2024 by 5% annually.
  • Inflation will remain high and will be around 7% by mid-2023 and around 4% by 2023, but may fall below the BoE’s 2% target in the second half of 2024. Interest rates will peak at 4.25% this year.
  • 2023 wont resemble the recession of 2008 and households defaulting on mortgage payments.
  • Average rental prices will raise by 6% during 2023 with stocks contracting ober the next 24 months.
  • Company insolvencies will remain well above pre pandemic levels for at least the next 6 months with further supply chain consolidation – but beyond that should reduce as we build back out of recession.
  • Unemployment will not surge due to skills shortages in some industries. Unemployment will peak at 5%, significantly lower than the 8.5% experienced after the global financial crisis.

Property and the Economy webinar - 1 March 2023

For further insights, join RSM’s upcoming Property and the Economy webinar in partnership with the British Property Federation and Savills on 1 March.

Kelly  Boorman
Partner, Head of Construction
Kelly  Boorman
Partner, Head of Construction