Even with the recent volatility of the UK economic market, the UK property market has remained resilient with homeowners and property investors still transacting. The number of property transactions continue to grow year-on-year, between December 2023 and December 2024 property transactions increased by 19%. One of the biggest factors which influences the performance of this market are economic ones, they shape the opportunities and risks present for property investors. Diving deeper into these influences allows us to better understand the nuances of the market and how to adapt as a means of seeing continued success.
Property investment is deeply intertwined with the broader economic landscape, from property prices to renter demand, there are a variety of economic factors which influence property investment performance. If we look at the impact of the COVID-19 pandemic or the after-effects of Brexit, each of these events has impacted the UK property market in a distinct way. The effects of which are still prevalent today. Investors who can understand and react to these changes have the potential to remain or become profitable, while those who turn a blind eye might risk losses and weaker performance.
To navigate these challenges effectively, let’s take a look at some of the economic factors that shape today’s UK property investment landscape.
Interest rates often underscore the affordability of property — specifically for people who plan to invest using a mortgage. When the Bank of England adjusts interest rates, it sets off a chain reaction. Higher rates tend to make mortgages more expensive, potentially cooling property prices. Conversely, lower rates can reduce borrowing costs, ultimately driving up demand and prices.
For example, in early 2020, interest rates dropped to a historic low of 0.1% during the pandemic, fueling a surge in property purchases. By 2023, the Bank of England’s base rate had climbed to 5%, significantly increasing mortgage costs and slowing the market. For investors, tracking these changes isn’t optional, it’s essential.
Property investment success isn't entirely determined by waiting for interest rates to change. However, understanding how changing rates — and the resulting impact on property prices — affect your strategy and goals is crucial to reaching them.
Inflation affects property investment in conflicting ways. On one hand, historically property values often rise during inflationary periods due to the increased appeal of tangible assets. On the other hand, persistent inflation usually triggers higher interest rates and, as mentioned earlier, this can dampen borrowing and purchasing power impacting both investors looking to enter the market and ones already in the market who have a mortgage.
In 2022, UK inflation peaked at over 11%, the highest rate in 40 years. This led to increased living costs, impacting tenants’ ability to pay rent while also driving property price growth — for a fair market a balance between the two is required. Understanding these trends and where property sits within them is vital when determining your investment strategy. Higher interest rates don't always mean that property investment is not practical, they do mean that landlords should evaluate their goals to decide how and where they invest.
Government intervention can mould investment strategies. Changes to stamp duty, capital gains tax, or landlord regulations can reshape the playing field significantly. For instance, the 2020-2021 stamp duty holiday could save buyers up to £15,000 which resulted in great market stimulation. Whereas now landlords could see an increase in initial costs with stamp duty increasing in April 2025, potentially leading to less competition amongst buyers in the 2025 market. If you have the capital to invest, this may be a good time to secure a property at a more competitive price due to the potential reduced demand the market might see.
Similarly, recent changes to Capital Gains Tax allowances in April 2023 reduced the annual exempt amount from £12,300 to £6,000, impacting investors’ profits. Staying proactive by monitoring policy announcements ensures you can pivot when needed and remain aware of when upcoming changes could impact your investment profitability and goals.
Strong local economies underpin thriving property markets. Employment rates and wage growth fuel consumer confidence and the ability to afford housing. For investors, analysing job growth in specific regions is crucial.
For instance, cities like Manchester and Birmingham have seen significant infrastructure investments, boosting local job markets and driving demand for rental properties. Birmingham’s Big City Plan, for example, is expected to create 50,000 jobs by 2031, and as a result of changes like this, the North West is predicted to see 30% price growth in the next 5 years. Understanding the development and economic landscape of different areas helps build a robust strategy grounded in market insights.
The impact of global events, from pandemics to geopolitical shifts, cannot be understated. Brexit, for example, altered migration patterns and foreign investment flows, creating regional disparities in property demand. In 2022, net migration to the UK reached a record high of 504,000, driving demand for rental properties in urban centres.
Similarly, the COVID-19 pandemic accelerated trends like remote work, influencing property preferences. Suburban and rural properties saw increased demand, while city-centre apartments experienced a temporary decline. Awareness and reaction to these external forces enable investors to adapt strategies and provide stronger potential to remain profitable during changing times.
Economic factors will continue to shape the UK property market in unpredictable ways. By staying informed, analysing data, and adapting strategies, investors can not only prepare for economic shifts but also potentially find opportunities hidden within them.
The key is information. Staying up to date with market changes to build an investment strategy based on economic and regulatory understanding could underpin success. Working with industry experts who understand different market areas can guide you in making informed decisions.
This is for your information only and should not be relied upon or construed as legal, tax, investment, financial or other advice. Whilst GetGround has tried to make sure this information is accurate and up to date, things can change, so GetGround cannot guarantee or be responsible for the accuracy, relevance and/or the completeness of the information provided. Certain information has been obtained from third-party sources and GetGround is not responsible for the accuracy of such content. Any prediction, forecast or projection is provided solely as an example of possible growth and return and will not necessarily reflect the actual growth and return. GetGround cannot promise that the information provided will be fit or suitable for any purpose. Any reliance that you may place on the information provided is entirely at your own risk. GetGround always recommends you obtain independent advice before making any investment decisions.