Blog post
September 13, 2023

LendInvest House View – Q3 2023: Property market analysis and sentiment

The past year has brought significant turbulence to the UK economy, making it challenging to keep up-to-date with the continuously shifting financial landscape. Consequently, we are introducing a ‘House View’ series, offering a retrospective analysis of the economy and offering our sense of how the housing market might move in the coming months. 


Macroeconomic update

In August, the Bank of England made its 14th consecutive interest rate hike, albeit by only 25 basis points, taking the Bank of England Base Rate (BBR) to 5.25%. This move, whilst not surprising, comes as a result of continued strong wage growth and service inflation data.

The latest labour report revealed that whilst there are signs the labour market is cooling, with the employment change falling 207k and the unemployment rate rising to 4.3%, marking a significant increase from its low in 2022 of 3.5%, it’s still not enough to substantially curb earnings. Wage growth in the 3 months to July accelerated from an upwardly revised 8.4% to 8.5%, above the 8.2% expected by market participants. Wages excluding bonuses remained unchanged at 7.8%.

Whilst the consumer price index (CPI) showed a smaller increase in July of 6.8% year on year (-0.4% month on month) compared with the 7.2% in June, it was still marginally (0.1%) higher than consensus expectations. This was largely due to the reduction in the energy price cap that Ofgem implemented in July, bringing down the cost of household bills. However, UK service inflation (the amount people pay for services) remains a cause for concern. In July, the index spiked 1.0% month on month from June, translating to a 7.44% year-on-year increase, the highest level in 40 years. However, the figures were broadly in line with the Bank of England’s August Monetary Policy Report projections of headline inflation at 6.8% and service sector inflation at 7.3%.

Consequently, consensus expectations are for the Bank of England to raise BBR by a further 25 basis points in September to 5.50%, with the risk of another 25 basis point hike by year-end tilted towards the upside, given the prevailing data trends. The BoE will be reluctant to give up its efforts, particularly due to persistent service inflation, and therefore we are likely to experience a prolonged period of elevated rates. Market pricing for the terminal rate pushed out again to a peak of 6.0% in early 2024, following the stronger wage and inflation data. However, the most recent Purchasing Managers Index (PMI) data, which signalled a contraction of the UK economy and thereby fuelled recession fears, has seen market projections for peak BBR retreat to 5.62%. 


Housing market view

Nationwide house price data for July posted a 0.2% month-on-month decline, translating to a 3.8% decline year on year. Meanwhile, Halifax house prices reported a 1.9% decline month on month, with an annual contraction of 4.6%, both larger declines than consensus expectations. Whilst we still expect the housing market to face significant headwinds from rising interest rates, cash transactions should help to limit the decline in house prices. Indeed, the ONS house price index, which includes cash transactions, continues to show positive annual growth. According to the index, average UK house prices increased by 1.7% in the 12 months to June. 

Whilst higher mortgage rates and stretched affordability will take a toll on households, and inevitably house prices, if households cannot afford to move they will simply stay put which reduces the forced need to sell at a lower price. Additionally, supply of UK housing remains limited due to lower levels of development.  

At LendInvest, we predict that house price growth will be negative this year (around -7%) and next year (-5%). Whilst there are downside risks associated with this view, when you consider the factors mentioned above, recent forbearance and support measures announced by major mortgage lenders, trade bodies and the government, increase the probability that the housing market will fare better overall than current mortgage rates imply. 


Rental market outlook

According to Zoopla, rental inflation continues to run in double digits for the 15th consecutive month, driven largely by an ongoing chronic imbalance between supply and demand. Constrained supply, along with a growing unaffordability of renting will start to weigh on rental inflation and result in a slowdown from their current levels of around 10.0%. However, given how the rental market has so far fared, as well as little prospect of increased supply, we now see rental price growth for 2023 slowing to around 7%. This is higher than the 5% forecast previously, supported by recent wage inflation and a tight labour market. Again, we note there are downside risks to this forecast, especially if a recession becomes more entrenched. 



In conclusion, while the property market faces challenges stemming from rising interest rates and supply constraints, mitigating solutions such as cash transactions and government support may help soften the impact. However, inherent risks persist, especially if economic conditions deteriorate, potentially reshaping the property landscape. Nonetheless, our approach at LendInvest remains steadfast in navigating market dynamics through competitive products, enhanced flexibility, and technological advancements, ensuring top-tier service in the ever-evolving property financing landscape.


This communication is not, and should not be interpreted as, independent research, advice, or an investment or other recommendation. Sources cited are normally public information and are part of the internal analysis used to produce this assessment, for external dissemination, of general market and economic sentiment, and potential property market movement. The information is presented in good faith and is considered to be reliable and accurate. However, we do not represent, or guarantee, that it is without error or omission. Any assumptions, estimates and opinions constitute our judgement as at the date of issuance and are subject to change without notice. No reliance should be assumed of, or placed on, the information herein.


LendInvest Mortgages and LI Mortgages are registered trading names of LendInvest Loans Limited.   LendInvest Loans Limited is authorised and regulated by the Financial Conduct Authority (FRN:737073).

LendInvest Loans Limited is a company registered in England & Wales (Company No. 09971600) and is a wholly owned subsidiary of LendInvest plc.

Regulated lending is provided via LendInvest Loans Limited (Company No. 09971600). Borrowing through LendInvest Loans Limited involves entering into a regulated mortgage contract secured against property. Your property may be repossessed if you do not repay your mortgage in full.

LendInvest plc is a public limited company registered in England and Wales (No. 8146929). Registered Office: 8 Mortimer Street, London, W1T 3JJ.

Unregulated lending is provided by LendInvest BTL Limited (Company No. 10845703) and LendInvest Bridge Limited (Company No. 11651573), which are wholly owned subsidiaries of LendInvest plc.

Unregulated borrowing through LendInvest and its affiliates involves entering into a mortgage contract secured against property. Your property may be repossessed if you do not repay your mortgage in full.

LendInvest Capital and LI Capital are registered trading names of LendInvest Funds Management Limited (FRN: 624223).

LendInvest Funds Management Limited is a company registered in England & Wales (Company No. 07667749) and is a wholly owned subsidiary of LendInvest plc.

Investing in financial markets and securities involves risk. The price and value of investments may fluctuate. Past performance is not a guide to future performance and future returns are not guaranteed. Nothing in this document constitutes or forms part of any offer to issue or sell, or any solicitation of an offer to subscribe or purchase any investment; nor shall it, or the fact of its availability form the basis of, or be relied on in connection with, any contract therefore. No information is intended, nor should it be taken as, to provide a basis on which to make a specific investment decision or to constitute a specific or personal recommendation. 

Before entering into any investment you should take steps to ensure that you fully understand it and have made an assessment of its appropriateness in the context of your objectives and circumstances, including the possible risks as well as the benefits. We recommend that you always seek independent advice, for example from your own tax and legal advisors.


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