Navigating the Future of the UK Housing and Rental Markets

Experts have different opinions about how quickly house prices will drop, but they all agree that by the end of 2024, house prices will be around 10% lower, erasing half of the gains made by homeowners since the pandemic began.

According to Savills, if mortgage lenders cut rates next year, house prices will start to recover from the end of 2024 onward.

2025 – 2026

Savills believes the drop in house prices will be short-lived, unlike the aftermath of the financial crisis. If mortgage lenders reduce rates next year and with the recent base rate drops due to falling inflation, Savills predicts a significant 7% increase in house prices in 2026. So, a UK housing market crash is unlikely.

2027

The Office for Budget Responsibility (OBR) predicts a 3.5% increase in property prices in 2027, while Statista forecasts an average house price growth of 1.7% between 2023 and 2027.

The UK Rental Market Predictions

The UK rental market is undergoing notable transformations, particularly in London and Birmingham. These cities are witnessing a flurry of construction activities, with investors and Purpose-Built Student Accommodation (PBSA) ventures focusing on housing projects.

In London, Build-to-Rent (BTR) developments are on the rise, offering professionally managed rental properties with various amenities. This trend is set to reshape the city's rental landscape.

In Birmingham, an interesting practice has emerged: entire houses are being rented out to groups of students. Letting agents facilitate this by listing properties with multiple bedrooms, allowing students to rent the entire house together.

Despite these developments, the rental market has experienced slower demand this year, with student occupancy levels at approximately 60%, down from the usual 95%. Various factors may contribute to this decline, including shifts in student enrollment patterns. However, the market remains dynamic, with ongoing efforts to address housing shortages and cater to specific market segments.

UK-wide rents are expected to increase annually by 3-4% between 2023 and 2026. However, there are regional variations, with rental growth in city centres predicted to be as low as 1% in Edinburgh and Glasgow and as high as 6% in Manchester and London.

The return of students and young professionals after the pandemic has fueled rising demand for rental properties, with rental enquiries currently 46% above the 5-year average. However, the supply of rental properties is 38% below the 5-year average, according to Zoopla's Rental Market Report from December 2022. This mismatch between demand and supply is expected to continue, with rental demand predicted to remain high in 2023.

The Buy-to-Let Market in the UK

Rising mortgage rates, inflation, and changes in tax and regulations are putting pressure on landlords with buy-to-let portfolios.

Stamp Duty for second homes has increased, tax relief has been reduced, capital gains tax allowance has been halved several times, and the Renters Reform Bill will end 'no fault’ evictions. Local regulations like the 90-day rule in London and mandatory HMO licensing in Birmingham add additional burdens.

Additionally, house price growth is already slowing, reducing the security on loans. This could make it harder for landlords to repay their mortgages and may increase repossessions. In such a scenario, landlords may choose between selling their properties or raising their rents. According to Hamptons, in 2022, UK landlords sold 35,000 more properties than they purchased.

However, holding onto a property can be a wise decision if you have a solid financial cushion and can manage mortgage payments. This strategy can pay off in the long run as property values tend to appreciate over time. With the rising demand for rental properties in popular cities like London and Birmingham, you can charge a reasonable rental price and earn a sustainable income.

If you are considering purchasing a buy-to-let property, you must ensure that the property will generate positive cash flow, even if interest rates rise and housing prices fall.

It's essential to research and carefully consider the location, rental demand, and potential return on investment. You should also be prepared for the responsibilities and challenges of being a landlord, such as finding reliable tenants, dealing with maintenance and repairs, and adhering to legal and financial requirements.

You can take some load off renting out a house using an online rental platform. On HousingAnywhere, you can manage the entire rental process online, from selecting tenants to setting up monthly payment plans.

This article is for informational purposes only. Please consult the appropriate authorities or a lawyer for legal advice.