The UK Property Market: The Outlook for 2024. A Guide for Landlords and Investors
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by Property Investments UK
The Property Investments UK editorial team have been researching and writing about the UK's property market for more than a decade.
Forecasting the property market is a notoriously tricky business. But in this article we’ll look at the UK property market and at what experts think might happen in the market in 2024.
Contents
- The Outlook for Interest Rates in 2024
- The Outlook for Property Prices in 2024
- The Outlook for Housing Supply in 2024
- The Outlook for Housing Demand in 2024
- Where Are We On The Property Cycle?
- The Outlook for Rents in 2024
- The Outlook for Housebuilding Costs in 2024
- Housing Market Legislation
- Property Market Sentiment
- Summary – Outlook For the Property Market in 2024
The Outlook for Interest Rates in 2024
After many years of low, interest rates, higher interest rates in 2023 have almost certainly worked to dampen the property market. How they move next could very much be the key to the property market in 2024.
After several interest rate rises many forecasters felt that interest rates would keep on rising in 2024. However, recent decisions from the Bank of England have kept them on hold for now, making the future direction of interest rates very hard to predict. Some experts feel interest rates will stay steady in 2024 while others feel they may fall slightly.
This report quoting the Bank of England suggests that the interest rate will stay steady until the end of 2024 then gradually fall by 1% or so until the end of 2026.
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The Outlook for Property Prices in 2024
Most experts are forecasting that residential property prices will fall in 2024. Most experts do not believe there will be a house price crash in 2024, however.
The most likely scenario seems to be that house prices will fall in 2024, but possibly by only a small percentage. However, many experts feel that they could begin rising again in 2025.
This report quoting the Office for Budget Responsibility suggests that house prices will fall 4.7% over 2024. However, they could recover to 2022 price levels by 2027.
Savills suggests that mainstream property values nationally will fall 3% in 2024, then they will rise 3.5% in 2025.
Capital Economics thinks that house prices will fall, but by just 1.5%, in 2024.
The Outlook for Housing Supply in 2024
Housing supply and demand can both have an impact on the property market. Higher demand and less supply of property can help to cause prices to rise. Lower demand and more supply can cause prices to fall.
Experts tend to agree that the housing supply will be lower in 2024 as developers cut back on creating new developments.
The House Builders Federation considers that new housing supply could fall to a record low in the coming years.
The Outlook for Housing Demand in 2024
Affordability is a key factor in deciding housing demand. If buyers cannot afford to take a mortgage or take a bigger mortgage, they are less likely to buy and demand will be lower. Affordability depends on such factors as the level of wage rises, the cost of living and inflation as well as property prices.
Many experts agree that affordability is very stretched in the property market at the moment. This is creating weak demand which is likely to continue in 2024.
A report from Schroders says that the average house in the UK costs around nine times average earnings – this is the worst affordability in 150 years.
EY say that decade-low mortgage growth is forecast into 2024, as high borrowing rates and low economic growth drive down demand.
Where Are We On The Property Cycle?
History has tended to show that the property market is cyclical. Property prices begin to rise, slowly at first, before accelerating with a period of fast-rising property prices. At some point, price rises become unsustainable and drop sharply or even crash. After a period of price stagnation prices begin to rise again and the cycle begins again and then repeats itself.
So, the outlook for the property market in 2024 may depend to some extent on where we are now in the cycle.
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The Outlook for Rents in 2024
It is not often realised that the levels of rents are a relevant factor in the property market: When rents are high renters are less likely to be able to save for a deposit to buy a property, and vice versa. This could impact rental supply and rental demand. Also, when rents are higher landlords and investors are more likely to stay in the rental market and vice versa.
Rents have risen sharply in recent years. Many experts agree that rent rises will be lower in 2024, or rents may even fall in 2024.
Zoopla says that there are signs that the UK rental market will turn in 2024. They say that average rents for new lets have risen 9.7% since a year ago. However, they expect rents to rise just 5% in 2024 as the market starts to cool.
The Outlook for Housebuilding Costs in 2024
It is also often not realised that building costs or construction costs are a relevant factor in the property market. When building costs, including materials costs and labour costs, are higher the selling prices of newly built properties are likely to be higher too. Higher selling prices may worsen affordability and dampen demand in the property market. The reverse also applies. When building costs fall new build property prices can also fall and help to boost the property market by encouraging buyers to buy.
UK Construction Blog asks: Will Construction Costs Go Down In 2024? They suggest that costs will not rise as sharply as over the last couple of years, but further price rises are likely.
Housing Market Legislation
New legislation can have an impact on the property market. New legislation can make it more attractive or less attractive to buy in the property market or to invest in the market.
Here are some key legal changes that may impact the property market in 2024:
* The Domestic Minimum Energy Efficiency Standard (MEES) Regulations set a minimum energy efficiency level for domestic private rented properties. Since 2020 landlords have been unable to let properties if they have an EPC rating below E unless they have a valid exemption in place.
Plans to reduce this to C as early as 2025 have recently been dropped. This change would have meant some landlords had to make costly improvements to their properties, and perhaps increase rents as a result. This development is likely to make buy-to-let investment in 2024 more attractive than it would otherwise have been.
* The Renters (Reform) Bill is currently working its way through Parliament. It will completely change the landlord-tenant relationship in England. Major changes include introducing a new form of tenancy, changing the rules on eviction including banning Section 21 so-called no fault evictions, and introducing new registration schemes for landlords.
If it becomes law in 2024 the Renters (Reform) Bill could make becoming a buy-to-let landlord more challenging than it is now.
* The Leasehold and Freehold Reform Bill is currently working its way through Parliament. It applies to England and Wales. This proposed new law will make it easier and cheaper for leaseholders to buy their freehold, increase standard lease extension terms to 990 years, provide greater transparency over service charges and allow more leaseholders to take over the management of their property.
If it becomes law the Leasehold and Freehold Reform Bill could offer something of a boost to the property market. It could make it easier to sell some leasehold properties, and make these kinds of properties more attractive to buyers.
Property Market Sentiment
One factor that can affect the outlook for the property market and which is very hard if not impossible to quote facts and figures on is market sentiment.
Sentiment could be described as a ‘feel good factor’. If people feel positive about the direction of the property market and other things such as their employment and income they are more likely to buy or invest in property. If people feel the property market might crash, their income is falling, or they might lose their job, they are less likely to buy or invest.
Generally, sentiment in the property market tends towards pessimism at the moment. This could continue or it could change in 2024.
Summary – Outlook For the Property Market in 2024
In summary, it could be said that prospects for the property market in 2024 are very difficult to call!
There are so many different factors at play in the market, each of which is pulling the market in a different direction. These include the interest rate, price trends, supply and demand, the future of the rental market, legislation and simply what buyers, sellers, tenants and landlords think will happen in the market.
One factor that could have a major impact on the property market in 2024 is the next UK general election, which will almost certainly happen before the end of the year. Which party wins and which direction they take policy in after that is almost impossible to predict at the moment. But that is likely to be the single biggest influence on the outlook for the UK market in 2024 and beyond.