UK PROPERTY MARKET update: september 2023
September 28, 2023
They say a year is a long time in politics, less so, perhaps, in economics, where - can you believe it - this month marks a year since everyone’s favourite mini-budget (not) sent the housing market into a U-turn even the most seasoned London cabby would have been proud of. The good news? We’re doing so much better. The base rate remains at 5.25%, sub-5% fixed rate mortgages are back on the market for the first time since June, and the consumer price index and core inflation are heading consecutively southward. What is the state of play in the UK market, you say? Well, it’s looking a lot more swell than this time 12 months ago. Investors should have the confidence to know what they’re dealing with in the UK market now, making for better – and more informed – decisions.
The Bank of England stops cranking the base
The main news this month is that the Bank of England decided not to make a further hike in the base rate to 5.5% sending signals that we may have hit ‘peak’ rates. Following a ‘surprise’ fall in inflation rates in August (a surprise to whom we might ask?) the Chancellor announced that Britain was beginning to see the ‘tide turning’ against high inflation and the streak of 14 consecutive raises since the end of 2021, came to an end. The rate now rests at 5.25%. Around the world, major democratic economies appeared to be doing the same; the Federal Reserve choosing to leave US borrowing costs as they were and the European Central Bank hailing its hike to 4.5% as its last. Who doesn’t love a consensus?
Inflation stood at 6.7% in the year end to August, down from 7.9% in June and its 11.1% peak in October (thanks Liz). Better news for investors, two-year tracker mortgages now look much more appealing, although, it would be injudicious of us to omit to say there is always a risk rates could rise again. That said, the September interest rate and inflation movements give leveraged landlords a bit of a breather – and renewed hope for increased profitability – after the uncertainty of the last 12 months. If, on the other hand, you’re a cash investor, happy days; the UK is a buyer’s market and you should be making the most of this opportune time. Feel free to window shop here.
What of house prices?
We’re seeing the effects of the affordability crisis trickle through to prices now – although not particularly on new build – and the pattern is far from consistent, with some parts of the UK proving more resilient than others. The ‘race for space’ that characterised the buying habits of the pandemic, is now, it seems in reverse in the southwest, those coastal counties previously a major beneficiary of this trend are now showing the steepest decline in the latest housing market data. London and other city centres remain resilient.
It takes more time for affordability pressures to filter into the mainstream house price indices so it’s natural to be seeing some falls in prices - asking or achieved - after the high growth of recent years. We think this will be short-lived; particularly in the new build market where the sheer lack of current and quality new build stock coupled with a curtailed development pipeline will send prices upwards again in 2024 – and steeply if the current chronic undersupply is not rectified. This pressure on supply will be further exacerbated by those looking to escape the soaring rental market tempted to buy again from the good news on interest rates this month thus providing extra pressure on supply, sending prices upward further. Savills recently predicted UK house prices to rise 6% over the next four years, in the new build market we would say this is conservative. Our advice is to fixate less on price predictions than the fundamentals of supply and demand.
- Knight Frank
“Tenant demand has outpaced supply each month since the reopening of the UK economy after the first lockdown in 2020. According to ONS, private rental prices paid by tenants in the UK rose by 5.5% in the 12 months to August 2023, up from 5.3% in the 12 months to July 2023. This was the largest annual percentage change since the data series began in January 2016, as demand continues to outstrip supply.”
- Knight Frank
“The imbalance between supply and demand in the private rented sector remains significant, with no signs of abating. Rental growth across the UK totalled 10.5% in the year to July 2023, up from 10.3% in June, according to Zoopla’s latest index, with the strongest growth seen in Scotland (12.7%) and London (12.4%).”
‘So, where should I buy investment property at the moment?’
Listening to our clients in the last 12 months we’ve looked for alternative investments for those seeking to avoid leveraged investments. This month we’re launching two exciting options alongside our more traditional buy-to-let UK offerings. The first is a development in western Berlin where loan to value ratios are much lower than in traditional UK mortgage lending – and therefore less susceptive to fluctuations in rates. The second, is a serviced apartment offering in the northern powerhouse English city of Leeds, priced perfectly for cash investors and featuring the additional bonus of a 5-year guaranteed rental income.
Berlin: The market everyone wants in on
Berlin is definitely capturing the zeitgeist at the moment, crazy new-build price projections over the next decade and a competitive rental market that makes London’s recent rises look modest. We’re launching the development Spreetal Living in the west of the city, a popular residential neighbourhood that borders the Spandau and Charlottenburg boroughs. As you’d expect in a city at the forefront of ESG, these apartments are energy-efficient and ideally located, a stone’s throw from one of Berlin’s newest areas of regeneration, Siemensstadt Square, whilst also being a short and direct commute to central Berlin and its major centres of employment. Prices start from €187,000 (circa £162,600) and we’ll be launching a series of blogs and our investment guide to give our buyers a better-rounded picture of buying in Berlin.
Leeds – the unsung hero of Northern England
RPA clients will no doubt be familiar with Leeds’s noisier northern neighbour Manchester, but we’ve been crunching the figures on the lesser-known Leeds, the largest financial centre in England outside of London. A major retail destination as well as a centre of excellence for finance, tech and healthcare, the city enjoys a steady stream of year-round visitors for work and pleasure. This month we’ve launched a completed development of 4* serviced apartments smack bang in the city centre; prices start at £110k and all apartments come with a five-year gross rental guarantee of 9%. Read our blog on why serviced apartments make a good investment in the current economic climate and learn more about the city of Leeds here.
As we turn towards autumn and the easing of the mercury here in Dubai – we’re glad to see the easing of the interest rates in the UK and an easier time ahead for our clients and their investment decisions. Please do get in touch if you have any questions about the market in general, or a specific opportunity you’re weighing up, we always love to hear from you.
about the AUTHOR
Managing Director
richard bradstock
Craig is the Associate Director of RPA Group, mainly focusing on South African Investors. He has been in the industry of UK investment property for around 13 years. He has worked across investment land, student accommodation, care homes, and high-demand BTL markets across the UK. Have a clear understanding of the challenges in the local markets related to property investment, the dynamics, and the requirements for local investors to invest abroad.