The UK housing market is widely anticipated to slow down over the next 12 to 18 months. This is due to the combined impact of inflation, rising interest rates and tax hikes on consumer spending power.

Over the last few weeks we have spoken to a number of valuers for their insight into the market. Hard data are still emerging, for example, according to intelligence provider Glenigan, construction starts in the three months to the end of September 2022 were down 23% on a year previously. Meanwhile, estate agency Knight Frank has forecast that UK house prices will fall by 5% in 2023 and in 2024. The valuers we spoke to forecasted for 2023 declines ranging from 2.5% all the way up to 10%.

At this stage it is difficult to accurately predict the extent of the slowdown since much will depend on how the economic and political landscape plays out. Also, while consumers are undoubtedly feeling the pinch, the UK suffers from a chronic shortage of housing stock – meaning that demand continues to outpace supply.

Implications of a slowdown

We believe the volume of transactions in the UK property market will fall over the coming months as consumers adjust to an environment where higher interest rates are the new norm. Historically, interest rates of around 6% are not high. In fact, the UK’s interest rate averaged 7.15% from 1971 until 2022, according to information provider Trading Economics.

The uncertainty around real estate and construction is likely to mean that large banks and financial institutions become more cautious about providing development finance. As a result, we believe that some very attractive opportunities should arise for investors.

Most real estate owners will choose to sit out what is likely to be a period of short-term market turbulence. Nevertheless, those who do need to sell during the downturn should expect to sell at a lower price than they might have previously commanded. That, in turn, creates opportunities for developers, as well as the investors who fund them.

Many market participants will want to seize the opportunities presented by a changing real estate market. The challenge for them, however, is knowing when to invest. Invest too early and they may end up backing a loss-making project; invest too late and they completely miss out.

The upside of uncertainty

Currently there’s a considerable amount of economic uncertainty – and no one really knows what’s going to happen next. It is likely, however, that the property market will experience a slowdown while consumer expectations adjust to higher interest rates.

This will put experienced property developers in a strong position to negotiate good prices on land in desirable areas and build houses that appeal to customers with sound financial status. With banks likely to hold back from development finance in the short term, the right investors can step up, at the right time, and seize what could be a highly attractive, risk-adjusted opportunity.