The property boom during lockdown caused prices to reach an all-time high and the prospects of a slowdown were doubtful, but as we enter a recession, industry experts predict that house prices could start to fall over the next couple of years, which could present great investment opportunities for stable investors.
As we prepare for prices to drop, we take a look at the potential impact awaiting the property market, the pros and cons of investing in property during a recession, and we highlight ways to prepare to take advantage of the market when the timing is right.
Why have house prices gone up so much?
The latest ONS figures show that the average property price reached £286,397 in June 2022. That’s an annual rise of nearly 8% and a monthly rise of 1%. The below chart displays the annual UK property price change over the past 5 years.
The above paints a clear picture of how the Covid-19 breakout and the introduction of lockdowns at the start of 2020 impacted nationwide house prices. A considerable spike appeared as social and lifestyle needs changed, causing buyer demand to grow as many chose to relocate in search of space and better value for money.
On a regional level, Scotland has seen the biggest annual change this year of 11.6%, followed by the east of England and Northern Ireland, both at just under 10%. This sudden surge in demand is one of the main causes of high prices, followed by other factors such as reduced mortgage rates and the stamp duty holiday.
Are house prices going to drop?
The property market defied many expectations over the pandemic and even thrived under such unique social and economic conditions, but now that we’re in a recession, many have been questioning when prices are going to start to drop back. Experts at Rightmove revealed that “The average asking price of a home in Great Britain fell by almost £5,000 to £365,173. This is a drop of 1.3%, which is on par with the average August drop over the past 10 years.” London saw the biggest fall of any UK region with an average price decline of nearly 3.5% between July and August.
Are we facing a recession?
A few months ago, the peak inflation rate forecast stood at 11%, but as reality continues to surpass predictions, the first UK recession in 11 years was declared in August. But what does this mean for the next few years?
The below chart maps out the Bank of England’s inflation forecast for the near future.
With inflation already at a 30-year high, the BofE expects this rise to continue for longer than initially anticipated. By Q3 2023, we could still see inflation as high as 9.5%, which is over 3.5% above the bank’s previous forecast. It could be the case that we won’t reach the original target of 2% until late 2024.
Due to soaring costs across the board, the BofE has also been forced to increase interest rates, which are currently at their highest level in almost 15 years. In terms of recession fears, the UK’s GDP could be tight for a while yet before things start to level out, causing a considerable delay before seeing any significant economic growth.
However, this isn’t the first time the economy has taken a hit, and there could be some comfort to take in historic data. Research shows that the average recession lasts around 11 months and, looking at our most recent example, we had a relatively speedy bounce back. During the Covid-19 pandemic, UK GDP fell by a record of 19.4%, but this drop recovered after the first lockdown when the country reopened for the summer and GDP rose again by nearly 18%. Also, the last two years are just one example of how reality can defy expectations as the housing market thrived despite industry predictions of a crash. So, while each case is different, it may not be what we think this time.
Pros and cons of buying property in a recession
Despite the obvious implications of poor economic health when we’re in a recession, it’s not all doom and gloom, and when it comes to property investing, a recession could lead to some significant opportunities for experienced investors who are ready to buy.
Below are some of the pros and cons that a recession could present for the property investment market:
| Pros | Cons |
| Lower asking prices: During a recession, demand is usually reduced. This can lead to properties staying on the market for longer, leading to lower asking prices and bargain potential. | Borrowing difficulties: If you’re relying on a mortgage in order to buy property, the borrowing process could be difficult during a recession as banks can be more cautious. |
| Lower mortgage & interest rates: A recession could lead to reduced mortgage and interest rates, which means that repayments could be smaller. | Selling difficulties: If you already own a property and need to sell before you buy, this could be challenging in a recession as there are typically fewer buyers available due to reduced demand, making the whole process longer. |
| Seller concessions: When there are fewer buyers around, properties could remain on the market for longer, which could open opportunities for concessions and further price reductions. | Competition: While there are generally fewer buyers on the market during a recession, those that are willing to buy could intensify the competition. |
On the surface, a recession means an unhealthy financial climate and sky-high living costs. However, there are several ways for savvy investors to make the most of the property market during a recession, such as simply being prepared. Also, if you’re a cash buyer, you could be better positioned to take advantage of reduced asking prices as opposed to waiting for a mortgage. There is no way to predict how long it’ll take for economic health to recover, so it’s a good idea to be at a point where you’re ready to buy and financially stable in order to make the most of any reduced prices and rates.
How development companies take advantage of recessions
There are several ways that development companies can find business and growth opportunities in a recession. This includes:
- Reduced prices: A budget-friendly opportunity that can be spotted during a recession is a lower cost of goods. Some suppliers can drop their prices as a way of staying competitive and keeping and attracting new customers.
- Reduced competition: In the example of sourcing new sites, developers could find less competition for a piece of land they want to acquire, often leading to cheaper prices as a result.
- Delaying the sell: As the economy approaches its peak, some commercial companies may choose to hold back on selling a development as a way to maximise profits.
How Propiteer Capital prepares for recessions
At Propiteer Capital, we take certain measures to make our business strategy work in recessional environments. One of those measures is that we always working hard to reduce operational costs with an efficient operations team. We also have clear strategic goals and set ourselves clear timelines for funding to completion, making every process manageable and under control.
We specialise in preferred markets, such as hotels and built-to-sell developments. We work closely with leading brands to run our hotels at low room rates or strategically place our housing in profitable locations where demand is high – even in a recession. Finally, we target high-end and high-quality developments for affluent customers.
How investors can profit from property in a recession
While there’s potential to come across a few bargains on the property market during a recession, buying and maintaining property directly remains time-consuming and the ongoing expenses can still be quite costly with the cost of living at a record high. One way to alleviate such pressures when looking to enter the market or expand your property portfolio is through bonds.
During economic uncertainty, fixed-rate bonds offer the advantage of knowing exactly what returns you’re getting from your investment. At Propiteer Capital, we offer fixed-rate bonds, through which investors can easily grow their money by investing in a unique portfolio of desirable, asset-backed projects. The projects that make up our portfolio are cherry-picked, making sure that selected assets are in profitable, transient locations across the country, giving them resilience during a recession.
Our targeting of various property types and regions also offers easy and convenient diversification opportunities across the property sector, making the Propiteer Capital Property Bond a one-stop-shop for a varied investment portfolio. To continue to offer such opportunities to existing and new customers, our developing partner, Propiteer Ltd, continues to bring exceptional developments to market after their successful navigation around the pressures of the pandemic.
Whether you’re looking for your next property investment or diversifying your portfolio, our attractive returns combined with fixed rates make planning for your financial goals easier in today’s volatile market. To find out more about Propiteer Capital, our property bond, or our rates and returns, visit our website or follow us on LinkedIn for regular project updates. Alternatively, you can get in touch with our friendly team with any questions.
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