The UK’s property investment landscape has been in a constant state of flux over the past couple of years, curtailing the rapid growth in house prices that we witnessed up to and during the pandemic.
The causes of this market slowdown are well known: sky-high inflation and, introduced by the Bank of England to curb rocketing prices, a rising base rate.
Although the BoE has pressed pause on its hiking cycle, the base rate (5.25 per cent) still resides far above the sub-1 per cent levels that property buyers and investors had become accustomed to between 2008 and 2022.
What’s more, the recent inflation print – showing that UK inflation had risen again – was a timely reminder that the threat of the cost of living crisis remains.
That said, the economy is in a more stable place than it was 12 months ago, and beneath the surface of these financial headwinds lies a landscape of intriguing investment opportunities that could potentially provide useful returns in the coming months and years.
A window of opportunity is opening
It is now widely accepted that the lending markets have stabilised, with products more accurately adjusted to the higher base rate.
Since the BoE halted its rate hiking cycle in August 2023, analysis by Moneyfacts shows that average fixed rate mortgages have now fallen to a seven-month low, causing many experts to suggest that homebuyers – including first-time buyers – will benefit from a mortgage price war in the mainstream mortgage market in the coming months.
Meanwhile, some specialist lenders have started 2024 by reducing rates across their bridging and buy-to-let mortgage ranges.
More generally, there seems to be more of a willingness to lend as economic conditions improve, which can only be a good thing for landlords, investors, and buyers.
Indeed, with lenders adjusting their products and adding new options to their ranges, there is clearly a drive to reignite the market after a challenging two years – buyer and investor demand ought to pick up thanks to improving rates.
With this in mind, there is cause for optimism as we survey the UK property investment landscape for 2024.
This optimism is prompted by improving data from the leading house price indices. Halifax’s house price index, for example, shows that average UK house prices rose by 1.1 per cent in December 2023 – the third consecutive month of positive growth.
Improving house prices comes amid expectations of base rate cuts by the BoE later this year.
Supporting this, Knight Frank’s forecasts for house prices in the year ahead have recently been adjusted up from a 4 per cent dip to an increase of 3 per cent in 2024. Meanwhile, Savills predict that prices will rise steadily over the next three years to reach 6.5 per cent growth by 2027.
Therefore, some investors will consider the opening months of this year as a good opportunity to re-enter the property market, getting in ahead of the projected growth in the medium to long-term.
Identifying opportunities across the country
The question, of course, is what corners of the market offer the best investment potential. From asset type to location, there are plenty of important factors to consider.
As ever, when viewed by region, the projected growth in the market varies significantly in different parts of the country.
In the North East, for instance, Savills data shows prices are expected to fall by 1.5 per cent in 2024, followed by a return to growth (+4.5 per cent) in 2025, and even strong growth in both 2026 (5.5 per cent) and 2027 (+7 per cent).
So, investing in a property in that region in 2024 could potentially yield investors a compounded capital return of up to 21.4 per cent by 2028.
On the BTL front, investors looking to boost their portfolios this year should look to the areas that promise the most growth in rental yields.
In 2023, for example, Ceredigion in Wales experienced a 3.8 per cent rise in yields to become the best area for rental yields in the country at 10.8 per cent – almost 1 per cent higher than Gateshead in second place.
Across the board, the Royal Institution of Chartered Surveyors is projecting that average rents will grow by 5 per cent across the UK over the next five years. However, some pockets of the market will outperform the rest of the market.
Knight Frank data reveals prices in prime outer London, for instance, are set to rise by 8 per cent in 2024, so there are some areas that could provide landlords with a speedier return on investment than others in the months ahead in particular.
As with recent years, BTL investors will be weighing up their own costs against rental returns to ensure they can secure healthy yields.
Financial options will proliferate, but true value comes from the overall service
As I have already touched on, lenders are seemingly readying themselves for the influx in demand that the continued recovery of the economy (and housing market) will likely bring. This will mean competitive rates and new products.
Indeed, as the market evolves, we will likely see increased competition among lenders, putting borrowers in a strong position. Brokers will subsequently be faced with myriad choices when sourcing loans for their clients.
However, I think it is crucial to recognise that the value of a financial product lies not just in its rates, but also in the flexibility and overall service provided by its lender – after all, each investment scenario is unique.
Therefore, finding a lender that understands the unique needs of every individual they lend to will make a significant difference as the market recovers throughout the year.
It will be intriguing to see how the market performs in Q1 2024. Improving prices, higher demand and competitive finance products will all contribute to a resurgence in property investments.
So now could be the time for investors to seize the opportunities that lie beneath the economic challenges that we are continuing to grapple with.
Brokers can help by collaborating with lenders that provide bespoke and flexible financial products, in turn ensuring their clients can navigate the evolving market with confidence.
Paresh Raja is chief executive of Market Financial Solutions