InFocus – psd’s December 2023 Review of the Residential Sector

Following a series of successive interest rate hikes, the UK economy is continuing to be in a wait and see phase, to assess the effects on the substantial inflationary pressures that have impacted the economy over the last two years. 

There are signs, however, that inflation has peaked but the falls have not been as significant as in other advanced economies. For example, inflation rose by 6.7% in September, the same rate as August. The Monetary Policy Committee (‘MPC’) has consecutively voted to keep rates stable at 5.25%, which, if this were to mark the peak would be lower than previous market expectations of around a 6% level. The pause in interest rate hikes has been driven by weakening economic data. Since then, data has been released which has fallen on the downside of the MPC projections – CPI, services inflation, monthly GDP and increased unemployment – these are likely to mean the MPC keeps the rates at 5.25%. However, average weekly wages increasing by 8% might create concern. 

Housing market activity has continued to slow, as high interest rates, sticky inflation, and a weaker economy impact buyers’ confidence. However, mortgage rates have improved, and house prices picked up over the last month. Home values were close to their peak in the summer of 2022 and there has been a sizeable downwards adjustment over the past 18 months. Housebuilders seem to be quite bullish that the decline in pricing is something that will continue but at the same time will be manageable for them. They are using numerous creative ideas to encourage sales levels. HMRC reported that there were close to 100,000 completions on houses across the UK in June 2023. Most developers think that the housing market is past its worst position and that prices look like that they will bottom out in mid-2024 with the average house price projected to fall by 3% in 2024 with the expectation that interest rates will drop to 4.75% by end 2024.

That said, developers generally believe that the housing market remains in the late stages of a typical housing market cycle. That should bring slightly greater house price falls in London and the Southeast in 2024 (where buyers continue to need bigger deposits and borrow more relative to their income) and the strongest overall price growth which is in Wales and the North East of England over the next five years. Whilst they expect that the backdrop to continue to be tricky over the next six months, the established and resilient businesses with strong balance sheets and experienced management teams will be in good shape when demand stabilises. There is of course the omnipresent pressure to address the UK’s housing crisis and drive long term, sustainable growth for the residential development sector.

psd has recruited in the Residential Development sector for 30 years and operates at at Board and senior management level. For further details please contact Peter Hardy, Managing Director at and 020 7970 9701.


Peter Hardy

Managing DirectorProperty & Construction