28 February 2024

How should landlords read the uncertainty in the property market?

By Annie Button Freelancer

Whether you’re a landlord managing a large portfolio or a prospective investor working out whether to buy a property to let out, understanding the current market is not as straightforward as it once might have been.

In previous years, forecasting prices and deciding whether to make an investment for a reliable rental was deemed ‘as safe as houses’. Today, the reality is that given a tumultuous few years with fluctuating house prices, changes in rental reforms and economic uncertainty, it’s hard to make accurate predictions.

Early on in 2024, however, you can take on board the statistics and evidence publicly available to make educated and informed guesses. If you’re planning to buy, stay as you are or insure a new Airbnb, this article looks at what landlords can expect this year.

Is there a house price correction or not?

Apart from the weather, discussing the rise and fall of the property prices is arguably one of the hottest topics on people’s minds. In 2024, this is perhaps even truer thanks to some level of change and a downward shift that has not been experienced for some time.

Whether there is actually a ‘housing price correction’ occurring in the UK market, or not, there have been some patterns to suggest house prices are dropping between 1-3% during 2024. This trend is according to industry forecast reports and predictions from the likes of Zoopla, Rightmove and Lloyds Banking Group. In addition, the OBR (Office for Budget Responsibility) predicted a 4.7% house price drop which is expected to remain in a downward trend until 2027. However, a silver lining is that its March 2023 forecast predicted a 10% drop in Q4 2022, and there is nothing to suggest this has materialised as severely.

When you’re looking into market performance, most house price falls affected properties in the South of England, according to Zoopla, but this trend looks to continue across regions in the UK. While no markets are currently registering annual price falls above 5% (yet), the property portal predicts this to happen across the board as sellers adjust asking prices to meet the dwindling buyer demand of 2024.

Should you keep a watchful eye on property?

While it might be difficult to predict what the market is doing, if you’re a landlord managing your property portfolio it is important to keep a watchful eye on house prices and mortgage rates. For property owners, falling house prices and reduced valuations have already affected borrowers, so be mindful and calculate the return on your investment (ROI) and costs. If you envisage a lacklustre ROI then this year might mean refinancing is an option if existing debt arrangements are about to end.

Compared to this time last year, the mortgage outlook for 2024 seems significantly calmer. Mortgage interest rates on standard variable rate mortgages have been falling thanks to reductions in inflation and the Bank of England’s base rate lockdown. Today, there is more optimism that the Bank of England’s Monetary Policy Committee might continue to reduce mortgage rates in the second half of 2024. As fixed-rate deals expire over the next year, monthly repayments could be significantly higher for existing homeowners. UK Finance, the representative body for banks and lenders, expects mortgage lending for house purchases to drop 8% in 2024.

What is behind the market’s slower growth?

Following years of property rises and sky-high inflation and interest rates, industry experts are predicting that an underperforming and sluggish economy will continue to have a knock-on effect on the housing market.

The UK property market has dealt with a fair share of volatility, from rising rents on newly-let properties to lacklustre job markets affecting people’s ability to save for a deposit on their first home, much less move into a rental property. Not only this, but the upfront costs of important property services such as conveyancing, market valuations and building surveying services will need to be accounted for.

In addition to fluctuating mortgage rates triggering increased monthly repayments for existing homeowners and pricing many prospective buyers out of the market, other factors have impacted the market. The slowing momentum of the UK property market can be boiled down to a few essential factors:

  • Interest rate levels remaining significantly higher than in previous years
  • Economic uncertainty discouraging prospective homeowners from pursuing a mortgage
  • Dwindling buyer demand due to cost-of-living pressures
  • Hesitation further bridging the supply-demand gap

However, it’s important to remember that forecasts are largely speculative at this stage, particularly given negative debates and a slow economic climate. As such, while it’s safe to assume continued mild downward pressure on house prices, a dramatic crash is very unlikely.

Are there any opportunities in 2024?

While the housing sector faced a series of obstacles, the situation is not all doom and gloom. Property portal Rightmove’s predictions suggest a 1% decline in asking prices across the UK, and if their track record is anything to go by (such as the 2% UK-wide decline over 2023 that only ended up reaching a 1.3% decline), there is cause to be optimistic.

There is potential for a ‘not-so-severe’ decline.

A housing market decline that’s not as severe as experts predict could pave the way for a more resilient and dynamic housing market that serves to benefit homebuyers and investors alike. Rightmove’s smaller price decrease predictions compared to last year provide encouragement for those entering the UK housing market for the first time.

Quick investment could trigger increased buyer demand.

As a result of this news, prospective investors are facing a short window to acquire investment properties below the average asking price. Therefore, potential investors may be under pressure to consider opportunities to invest sooner before prices rise. This could inevitably open the door for new homebuyers to enter the market and acquire mortgages for stable prices and with attractive properties to purchase.

Sellers are therefore poised for opportunities to attract fairly sparse numbers of buyers to their properties for the right price, especially considering the widespread housing shortage.

Increased market competition and activity are crucial.

It’s clear that most experts predict a housing market dip in 2024, but it’s important to remember that heightened competition among sellers is partially responsible for this dip. Sellers are trying to compete to secure buyers who are facing difficulties trying to secure an attractive mortgage rate.

Rightmove also predicts that mortgage rates will decrease while remaining elevated throughout 2024, which homebuyers should pay close attention to. Favourable mortgage rates can affect affordability, stimulate buyer interest, and generate activity in the market, however subdued it may be.

It remains to be seen whether more UK buyers and landlords will choose to tap into the market this year given the unpredictable economy and imminent general election. With prices remaining lower, it might be the perfect time to take that proverbial next step. However, some property professionals may see greater fortune by waiting and observing during the next few months.

While growth isn’t likely this year, the market is still resilient and stable. Home values remain high and budgets are tightening, granted, but investors can end up on the winning side with the right pricing strategies and financing options in tow. Staying vigilant and adaptable will prove crucial for navigating the evolving UK housing sector in the year ahead.

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