The Bank of England has warned that the UK is heading for the longest recession on record, with no recovery expected until after H1 2024.
The bank underlined a “very challenging outlook for the UK economy” and predicted inflation would peak at 11%.
In its bid to curb inflation, the bank’s monetary policy committee raised the base rate to 3%, from 2.25% – the biggest jump since 1989.
Industry figures said the rise in the base rate had confirmed market expectations for a slowdown and would pile on the pressure for owners seeking to refinance their properties.
Ian Mackie, managing director, real estate and fixed-asset valuation practice at Berkeley Research Group, said: “While not unexpected by the market, from a commercial property perspective, the rise in base rates will exacerbate the current pressures on valuations across all asset classes and will lead to purchasers seeking pricing adjustments on transactions. However, it is likely that the greater immediate pressures will be felt by landlords seeking to refinance existing assets and this will contribute towards further market uncertainty.”
Antony Antoniou, managing director of central London residential and commercial agency Robert Irving Burns, said: “It has been a case of who blinks first, as city investors keep their powder dry waiting for the impending market correction, and sellers are loathed to bend on price; but today’s gloomy predictions will break the deadlock and we are already seeing a softening of values in the West End reported by the likes of Capco.
“Sophisticated investors are unlikely to remain in cash, especially while inflation is still outstripping the cost of servicing debt, so we are expecting to see the floodgates open and a surge of activity before Christmas.
“Overseas investors are still able to secure a great deal on prime assets and we are also expecting to see the smaller buy-to-let investors, whose margins have been squeezed hard by the rising mortgage market, taxation and cost of living crisis, cashing out to release their equity, which will bring new residential stock onto the market.”
Jon Neale, head of UK research at JLL, said: “On the commercial side, the rise in base rates confirms market expectations, and supports the ongoing repricing which has seen yields move out by 50-125bps over the past few months.”
Marcus Dixon, director of UK residential research at JLL, added: “A further rise in the base rate, while uncomfortable for those not locked into fixed rates, was not unexpected, with it being more a question of when rather than if rates would rise.
“This will of course impact the housing market, albeit this increase was likely already priced into new fixed-rate deals and market forecasts. The MPC announcement does not change our outlook. JLL is forecasting that higher interest rates, combined with the winding down of the Help to Buy scheme, will mean we see a 30% fall in transactions in 2023 compared with 2022, around 300,000 fewer sales nationally.
“JLL is forecasting prices will fall too, by 6% UK-wide in 2023, following a strong performance this year. But not all areas will perform in the same way. Markets less burdened by debt, with a higher proportion of cash purchasers, are expected to be better insulated, central London for example is forecast to see a 2.5% increase in prices next year.”
Ben Woolman, director at Woolbro Group, said the “eye-wateringly high mortgage rates” would serve as the “main barrier to ownership for many first-time buyers, who simply won’t be able to afford the monthly repayments”.
“The government has a ticking time bomb on its hands when it comes to Britain’s housing crisis – and one for which they may be punished at the polls come the 2024 general election,” said Woolman.
“If the prime minister wants to restore the Conservatives’ reputation as the ‘party of ownership’, he must act urgently to tackle Britain’s housing crisis.
“An obvious first step would be to commit to long-overdue reform of Britain’s planning system, which has long served as the main obstacle to the country delivering the new homes it needs.
“This will make it far easier and more efficient for developers to build properties where they are needed by depoliticising decision-making within planning authorities.”
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