The UK property market : In praise of perspective A year in review from RPA group
December 06, 2023
If you place great stock in media headlines, then it’s been a funny old year for the UK property market. Alarmist titles, negative month-on-month comparisons, market data manipulated and spun… we needed to hold our nerve. But, as the year draws to a close it allows for a period of reflection and the opportunity for that wonderful thing – perspective.
Looking back at the data over a year, we see the emergence – or indeed a seasonal reminder – of how strong, stable and sound the UK housing market is. It’s the positive prescription investors are looking for as we get ready to embrace a new year, 2024.
Average House Prices
Sticking with the theme of perspective , the graph below shows the monthly average UK house price as compiled by data from the ONS. A year ago, in November 2022, we can see the market coming out of its covid high and entering a period of price correction. Towards the end of 2023 we can see a market stabilising from this correction. Savills have predicted a higher rate of growth in prices in 2025, which means 2024 should be a good year for investors looking to pick up a property for a more affordable price, before the curve steepens again.
AVERAGE UK HOUSE PRICES (GBP) 2023
Source: Office for National Statistics
base rates
By contrast, the graph below tracks the Bank of England base rate over the last year; a steady climb to a high of 5.25%, where it’s now predicted to rest for the foreseeable short term future.
Capital Economics predicts the base rate will fall to around 3% by late 2025, which is good news for investors buying off plan property. Buying now in a buyer’s market gives you more room to negotiate your purchase price and by the time your property has completed, you’ll be leveraging on more appealing lending rates.
BANK OF ENGLand base rate 2022-2023
Source: Office for National Statistics
The following chart shows the Bank of England base rate over a longer period, from 2007 to 2023 and we see a classic inverted bell curve, as one cycle gave way to another. As we approach the top of the curve at the end of 2023 with rates stabilised at 5.25%, we can now look forward to the rate declining once more, good news for investors looking to leverage purchases.
Bank of England base rate 2007-2023
Source: Office for National Statistics
Rents are a different story; a record-breaking year, 2023 has seen an annual increase in UK average rents by 9.5%, taking the rental increase from March 2020 (the start of the Covid pandemic in the UK) to whopping 26% growth over three plus years. Where does this leave us heading into 2024?
Savills predicts rents will grow by another 6% in 2024, before hitting an “affordability ceiling.” Between 2025-2028 they’re forecasting a more modest annual growth between 2-3.5% per year.
What of rents?
WHY HAVE RENTS INCREASED SO MUCH?
Simply, the higher rate of lending. The increasing base rate – 13 consecutive rises – meant a higher cost of borrowing which meant more people staying in the rental market put off buying property by the uplift in the cost of a mortgage at a particularly unaffordable time (cost of living crisis). At the same time, the rising cost of borrowing affected the 78% of UK landlords who have mortgages on their buy-to-let properties. We don’t have to hand the exact data on the number of landlords who have tracker mortgages but it was sufficient to produce unprecedented strain on the number of available rental properties, as seeing their profit margins squeezed, many landlords chose to sell up. So not only did we have MORE people in the rental market there was an all-time low of available rental properties. Hence the double-digit growth in rents.
The graph below shows the trends of the rental market, enabling us to see the steep rises in rents witnessed since 2023. Rises in earnings will support rents to level off, we’re unlikely to see a return to pre-pandemic rental prices, however, it’s good news for leveraged investors; a decreasing base rate will produce increased profit margins when the rates begin to ease off in 2024.
UK Average Rents 2020-2023
Source: Office for National Statistics
Here’s a longer term look at average rents in the UK.
UK Average Rents 2016-2023
Source: Office for National Statistics
And so we sign off with seasonal cheer and an optimistic outlook for 2024. We wish all our clients peace, joy and time well spent with loved ones during the festive season and look forward to bringing you more of our best-in-class UK property investments in 2024.
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RICHARD BRADSTOCK
MANAGING DIRECTOR
about the AUTHOR
RPA’s founder, Richard has worked in residential development investment for 20 years and oversees the general running of the business ensuring the RPA Group retains true to its founding principles. Over his career Richard has built an incredible network of international property investors and like-minded industry professionals. The RPA Group was born out of a duty of care to provide property investors with an industry-leading and integral service, one that connects investors with quality and desirable investment opportunities, whilst providing reliable and trustworthy market commentary and analysis alongside, enabling investors to make the best, most-educated decisions for them.