Here are this week’s highlights in the UK economy.
The UK economy will be the worst performer in the G20. The OECD has warned that the UK economy is likely to fall 0.4% in 2023 and recover the year after but only by 0.2%. The country is the only G7 member that has yet to experience a rebound in its output.
England’s office stock diving at the fastest rate in 20 years. Law firm Boodle Hatfield reports that office floorspace has contracted by 6% since 2014. The slowdown in new construction and lower demand for spaces are blamed for the fall in office space stock.
Demand for rental homes up by 23% in a year. Rightmove reported that more potential home buyers are delaying their plans until mortgage rates fall next year. However, the group warned that while mortgage rates are now easing, they won’t stabilise at a lower rate.
UK to experience harder housing crash than the US. Following the huge property sales fall in the United States, credit ratings agency DBRS Morningstar predicts that a housing crash is likely to happen in the UK since house prices have grown much higher than wages. In the US, mortgage repayments make up a far smaller portion of a household’s income compared to the UK.
Finanze Foresights:
Although mortgage rates are now expected to return to pre-mini-Budget levels, we don’t anticipate it to reach the pre-pandemic rates that many home buyers have taken advantage of previously. As a result, potential buyers may have to hold off their plans for now and join the growing number of renters across the country who can’t get their feet on the property ladder.
Tenants are competing for an undersupplied rental market while frustrated home buyers are looking at renting as a short-term recourse, this may very well be extended as we see no signs of improving affordability in the year to come. In addition, with more interest rate hikes by the Bank of England (BoE), this won’t push home loan costs to more affordable levels anytime soon.
What’s surprising is that the English Housing Survey’s classification of the types of renters in its 2020-2021 report is that both private and social renters who are “financially stretched” or belong to "urban adversity" rank high in the survey, compared to owner occupiers who mostly belong to categories such as “affluent achievers” and “comfortable communities.” And with many of these renters still being priced out of the market, we expect the trend to continue.
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