Property markets UK – how are they dealing with uncertainty?

Brexit, COVID, invasion of Ukraine, cost-of-living crisis, base rate raises, inflation, what's next?

Property markets UK – how are they dealing with uncertainty?

The financial market within the UK is enduring a difficult period with inflation reaching a new 40-year high, alongside increased living costs due to the cost-of-living crisis. On top of this, the Bank of England upped the base rate from 1.25% to 1.75% in its most recent Monitory Policy Committee (MPC) meeting.

However, 64% of property professionals remain confident about their business over the next 12 months, according to a webinar poll undertaken by Countrywide Surveying Services (CSS).

“Just as the UK thought it had negotiated Brexit and navigated the worst of COVID-19, little did we know, there was further uncertainty around the corner,” said Eli Korman (pictured), head of development finance and CIO at TAB.

He explained that COVID, Brexit, and the invasion of Ukraine had driven up the cost-of-living, pushing inflation to 9.4%. He outlined that both are expected to rise further in 2023.

“The Bank of England has reacted by raising rates, which is again expected to keep increasing. More recently we have seen disruption in Parliament leadership take its toll on the economy, too,” Korman said.

With all this uncertainty, he believes the prospects for the economy look bleak, however, he noted that the property finance market is looking a little more positive.

Read more: What is the UK's inflation rate?

House prices are still rising, and in a recent report published in July, Nationwide said price growth accelerated to an annual rate of 11%. According to another research report, Korman explained that London housing in H1 2022 was stronger than it has been since 2014.

“Demand for finance remains high as illustrated in unregulated residential bridging loans making up a significant portion of our loan book,” he said.

According to Korman, while interest rate rises are a concern, borrowers and lenders alike are pricing this into their appraisals.

“The undersupply of UK housing, coupled with construction costs having seemingly levelled out, meaning I expect to see more property developments come to fruition, and subsequently more development finance. Indeed, our development finance loan book has been increasing recently,” he claimed.

Read more: How is the cost-of-living crisis impacting homeowners?

Korman also noted that commercial property seems to be holding strong and pointed toward reinvestment in the high street.

“The revival of the high street and a newfound passion for the local community means businesses that have navigated through COVID-19 have begun to stabilise. The office market looks like it might be rebounding, too,” he said.

Although directors have adopted hybrid working, Korman said that employees are demanding greater health and wellbeing initiatives that are being built into office infrastructure. Strong demand for more environmentally-sound workplaces is also driving the rebound. As such, he said the market has seen some large commercial loans reach completion to support business progression.

As for the property financial markets, Korman said alternative flexible lenders with committed funding lines and the ability to make quick decisions have become particularly useful funding solutions in times of uncertainty.

“Record months of demand for our bridging and development products suggest there are plenty of opportunities out there for property investors,” he concluded.