There continues to be a lot of attention and debate among property investors and analysts about the UK property market in recent years. This has been fueled by shifting dynamics of the financial markets as well as global events all of which have had a significant impact on the property market.
The key is for UK property investors to be aware that overall as historical data confirms, UK house prices have consistently grown over the few decades, nationally the increase is 44%. On a granular level, yes the rising interest rates and higher mortgage rates have put a downward pressure on house prices, but I see this as a natural market correction.
The state of mortgages:
Current mortgage rates are at the highest since 2008. The hikes are likely to continue since lenders often follow future Bank of England interest rates.
This obviously impacts affordability for property investors and reduces demand. One consequence is lenders are lengthening mortgage durations, for example the proportion of new house purchase mortgages taken out with 30+ year terms is rising.
The state of the property sales:
House prices are up 0.2% in the year to August so the growth is stalling. This is the 10th consecutive monthly fall in house price inflation.
Mortgage rate hikes have pushed house prices down however UK’s unique and consistent supply deficit means there is a floor to house price depreciation. For example, in 2021/22, the UK’s government’s target of 300, 000 new homes per year fell short by 67, 000. Whilst this deficit is being addressed by the government, it is likely supply will continue to remain a limiting factor in some measure.
Across the country, the North East of England saw the highest change in house prices in the last 12 months to August at 3.6%. Yorkshire and the Humer and the West Midlands also did well with annual price increases of 2.2% and 1.1% respectively. Coming South, The East of England saw the lowest rate of annual growth with a drop of 1.6% whereas London saw a drop in annual house price growth with a fall of 1.4% in the year to August. Northern Ireland and Scotland have fared well with a positive annual increase at 2.7% and 1.1% respectively. In Wales the annual price growth dropped by 0.1%. This means as a country, there was an annual price increase of 0%
The conclusion for property investors is that UK house prices remain stable.
The state of the rental market:
The demand in the rental market will continue to remain positive since the supply remains in deficit. Data from the RICS New Instruction series shows there is an ongoing decline in properties being let for the 12th consecutive quarter.
This benefits UK property investors wishing to let their investments, invest in the right place and you will have a good demand from renters.
Conclusion:
The UK property market is in a state of flux, with varying trends in property sales, rental values, and economic factors. The history of property investing in the UK shows a consistent growth in returns across years despite the corrections along the way.
It is therefore important for property investors to continue to keep the long view in mind, see corrections for what they are and continue to appreciate the resilience of the UK property market.