The current state of the UK property market; Forecasts from UK industry experts; Where are the best areas to invest; How to prepare and succeed...

The UK is past the worst

Britain’s economy saw its most robust growth in nearly three years during the first quarter of 2024, marking the end of the somewhat shallow recession that occurred over the latter half of 2023. According to data released by the Office for National Statistics (ONS) last Friday, Gross Domestic Product (GDP) expanded by 0.6% in the first three months of the year. This growth represents the strongest performance since the fourth quarter of 2021 when GDP increased by 1.5%. Notably, this growth comes after contractions of 0.3% in the fourth quarter and 0.1% in the third quarter of the prior year. Typically, a recession is defined as two consecutive quarters of economic contraction.

The Bank of England maintained its key interest rate at a 16-year peak but hinted at potential rate cuts in line with it’s European peers. In its Thursday meeting, the central bank upheld the key rate at 5.25%, as expected, marking the sixth consecutive meeting without change. The Monetary Policy Committee (MPC) voted 7-2 in favour of holding rates steady, with the minority advocating for a cut. Despite this stance, the MPC remains cautious, citing elevated indicators of inflation persistence, particularly with services inflation reaching 6% in March, and acknowledging “upside risks from geopolitical tensions”. The central bank committed to monitoring forthcoming economic data releases to gauge the diminishing risks from inflation persistence before its next meeting on June 20.

UK house price and rental forecasts

The UK property market is currently in the beginning stage of recovery with most experts predicting modest price increases or a soft landing after the declines seen in 2023. Here are some key predictions:

- Knight Frank has upgraded its forecast and now expects UK mainstream house prices to rise by 3% in 2024, up from an earlier prediction of a 4% drop. This is attributed to falling mortgage rates and changing interest rate expectations, and a renewed mortgage pricing war among lenders.

- Savills anticipates UK house prices could rise by around 2.5% in 2024, an improvement from their previous forecast of a 3% decline. Easing mortgage costs and better economic prospects are cited as factors.

- The Office for Budget Responsibility (OBR) forecasts a 4.7% drop in UK house prices in 2024, while lenders like Nationwide and Halifax predict more modest declines of 2-4%. Be aware that major lenders remain cautious and this may result in down-values on mortgage loans during Q3/4.

- Rental values are expected to continue rising, especially in London, with Knight Frank forecasting increases of 5.5% in prime central London and 4.5% in prime outer London in 2024. This growth is fuelled by a persistent supply-demand imbalance. Properties included in ‘prime’ are those close to outstanding schools and they could experience year-on-year double digit growth over the peak season.

- Transaction volumes are anticipated to rebound, with Knight Frank projecting a 10% year-on-year increase in mortgage approvals in 2024 due to improved affordability.

However, uncertainty around the general election, ongoing inflation risks, and affordability constraints could potentially dampen the speed of recovery, especially in prime markets.

Nonetheless the UK housing market is undoubtedly poised for a rebound, presenting attractive opportunities for savvy investors looking to capitalize on the newly emerging property cycle. This is further supported by the delays in planning approvals for new housing developments. It’s a significant factor that could negatively impact the supply of homes in the UK property market going forward.

-According to Knight Frank's survey of housebuilders, around half of respondents said they allow over a year to secure final planning approval on an allocated site, when historically it would typically take 8 weeks or 3 months for large developments.

-Government data shows that in Q1 2023, the number of major residential planning decisions granted in England fell 16% compared to Q1 2022 - the slowest start to the year since 2009!

-The current uncertainty around the future direction of planning reforms has led many housebuilders to stall new development projects. These delays in securing planning permissions are hampering the delivery of much-needed new housing supply to meet a growing demand.

This is not new news in the UK. The chronic undersupply of new homes in the UK has been a talking point for quite some time and continues to be a key factor underpinning house price growth over the long-term. Any further constraints on supply from planning bottlenecks could exacerbate this imbalance.

The delays in planning approvals have significantly impacted housing supply across the UK, with some cities being more affected than others. London is one of the areas facing significant challenges from delays in planning approvals. The capital has historically struggled with housing supply issues, and the recent planning delays are expected to exacerbate the problems here even further.

The Office for National Statistics (ONS) and the National House Building Council (NHBC) have not published specific figures on the impact of planning delays on housing supply in different cities. However, some relevant insights can be gleaned from their data:

- According to the ONS, the number of new dwellings completed in London in 2022 was 16,619, a decrease of 12.5% compared to 2021.

- The NHBC reported that the number of new home registrations in London fell by 35% in 2022 compared to 2021, indicating a significant slowdown in the pipeline of new housing supply .

While these figures do not directly attribute the decline to planning delays, the prolonged approval processes are likely a contributing factor, along with other economic challenges faced by the housing market in 2022.

For savvy investors looking to capitalize on the emerging property cycle in 2024 and onwards, cities like London could present a surprising opportunity. I strongly advise against densely populated, high-rise areas with an over-demand (and supply) from overseas investors - areas like Royal Albert Dock. Better to consider locations which are popular with 'locals - They account for 8 out of every 10 property transactions in the secondary market.

As the planning system reforms take effect and the backlog of applications is cleared, areas with pent-up housing demand, like London, may experience a surge in new developments in the next year and potential price appreciation.

With the reduction of supply in new build property coupled with the expected decline of interest rates and mortgage approvals on the rise, supported by the government's mortgage guarantee scheme, buyer demand is set to strengthen and this can only mean one thing!

Where to invest and what to consider?

For investors seeking lucrative opportunities, several other regions in the UK are emerging as property hotspots. The Midlands, particularly cities like Birmingham and Nottingham, offer attractive prospects due to their current affordability, strong rental yields, and ongoing regeneration efforts. Northern cities like Glasgow, Leeds and Derby are also witnessing significant investment and development, making them appealing options for both residential and commercial property investments.

To capitalize on the favourable market conditions, savvy investors should consider the following strategies:

1. #Focus on #Energy Efficiency: With rising cost of living and sustainability becoming a key concern, energy-efficient properties will be highly sought after. Investing in properties with strong energy performance ratings can provide a competitive edge and potential for higher returns.

2. #Regeneration Areas: Explore areas undergoing regeneration – they often present opportunities for capital appreciation. Identifying up-and-coming neighbourhoods with planned infrastructure improvements and development projects can yield substantial long-term gains.

3. Consider #Buy-to-Let Investments: With rental values expected to continue to rise, buy-to-let investments in high-demand areas will likely generate attractive yields and offer strong potential capital growth.

4. #Diversify Portfolio: Diversifying across different property types and locations can mitigate risk and provide a balanced exposure to the market. Limit debt exposure. Look for high yielding properties with high salaried or AAA Grade tenants.

5. Seek #Professional Advice: Consulting with experienced property investment experts can help navigate the market, identify suitable opportunities, and develop a strategic investment plan aligned with individual goals and personal risk profiles.

Summary

As the UK housing market enters a new property cycle, with steady price growth and a robust rental market, the current conditions present a favourable environment for investors to enter the market and capitalize on the emerging opportunities. You might wait, but historically it is those that invest now who benefit the most.

DM me or Email [email protected] for a free list of properties I recommend which are sure to perform well in 2024.