With properties recently being sold at around 4 to 5% less than expected, we spoke to our Co-Founder and Director, Andrew Hall, about his market predictions for the next 12 months.

A qualified Chartered Surveyor, Andrew has been working in the commercial and residential property industry for more than 35 years. During this time, he has developed an unrivalled understanding of the property development process, having personally developed and managed in excess of 5,000,000 sq ft property space.

The current picture: Unprecedented times

To say the property market is a challenging industry to currently navigate is an underestimation, especially in relation to forecasting what the next year holds for developers and the industry at large.

In recent years, we’ve all witnessed the UK property market being subjected to a rollercoaster of twists and turns. From an epic growth spurt fuelled by affordable borrowing rates in the summer of 2022, rising rental prices and consecutive interest rate freezes, to the end of the Help to Buy Scheme, resulting in higher borrowing costs. And, of course, there’s the widespread impact of the pandemic, which triggered people to revaluate where they live and relocate to areas that better suited their mindset, lifestyle and working arrangements. At the same time, it also resulted in property prices soaring by up to 20% and supply chains being severely impacted sector-wide.


The next 12 months: As forecast by Andrew   

The following predictions have been formulated by Andrew based on his extensive experience coupled with current conversations and his first-hand exposure to the latest market activity:


Prediction 1: Market valuations will decline even further    

In June 2022, we witnessed growth in the residential property market over the previous 18 months that hadn’t been seen since 2007. The height of the market was Q3 2022 and, as with all cyclical trends, with the reduction in transactions the market has since moved in a downward direction. However, some developers continue to appraise projects using historicocal data (predominantly because of the lack of decent evidence) and therefore receiving RICS commissioned valuations with c. 25% of commissioned valuations being knocked back.

Market sales prices for the next 12 months at the very least will continue to reduce by another 4 to 5% before flatlining in 2025, and then starting to modestly improve in 2026. However, in order for this to happen:

  • inflation needs to be completely under control, i.e. at 2%;
  • mortgage rates need to be at 4.5%; and
  • interest at 3.5%.

At the time of writing, inflation is at 3.9%, the bank rate is at 5.25% and mortgage rates have been cut across the spectrum by lenders as they compete for market share – with the lowest available five-year fixed rate at 3.88%.

HMRC reported that residential transactions fell for a third consecutive month in November 2023, with non-seasonally adjusted residential transactions falling by 22% since November 2022. However, there are early signs of improvement in terms of housing activity, with agents reportedly booking in new meetings with prospective house sellers. This increased supply is expected to drive momentum, although listings are likely to be priced more pragmatically and competitively than previous months.


Prediction 2: Profit on cost will remain a valuable financial barometer

 Profit on cost is an essential indicator for understanding the economics of a project and assessing whether or not it is going to work. All developers want their projects to deliver some form of a return, with profit on cost remaining the most effective way of identifying project value from the outset.

In the current climate, deals are likely to be scrutinised more closely by lenders to ensure they will still stack if another spike in rates were to occur. The level of profit on cost should be assessed per project – there is no use applying a minimum percentage across all projects as this impacts each development differently.


Prediction 3: Risk profiles will continue to increase

Thanks to our property expertise, we continue to fund a variety of projects at any stage - but given the currently challenging environment, risk profiles are inevitably increasing. At the same time, so too is the management of risk.

Current market sentiment shows there is a distinct air of caution flowing across the sector among everyone involved - valuers, lenders, agents, etc. Overall, there is less traction, less activity and, as it has been widely reported, less housebuilding activity.

However, there are still opportunities out there if a bit of tenacity is applied to find and fund them.


For further insight on the latest market activity, read our December 2023 State of the Market Report.

In the meantime, to apply for funding, complete this short form and one of our property experts will share their insights and initial funding terms for your project within 24 hours.

25 Jan 2024

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