As 2023 comes to a close, we look back on a year that saw the highest mortgage rates in 15 years, house prices fall, and property transactions decline. Property investment remains a strategy for growing wealth even during difficult times. Although the year was a rollercoaster we also saw portfolio landlords hold onto their buy-to-lets and confidence slowly started to return to the market when the Bank of England held the base rate. With the year ending and the new year around the corner, we take a look at why the upcoming year is one where investing in property is a strategy that will help you build your wealth as you capitalise on the conditions of a buyer’s market.
Property prices are projected to rise in upcoming years
Property prices have fluctuated monthly over the year but there has been a general year-on-year decline in prices, and Rightmove forecasts that in 2024 these prices will drop a further 1%. This may not sound like the best news for current landlords, but for investors looking to enter the market or expand their portfolio, it presents an opportunity to benefit from more affordable pricing. In fact, Zoopla writes that current market conditions are as favourable for buyers as they were back in 2018. Even better news, both for present buy-to-let owners and potential investors, is that Savills forecasts property prices will grow by 17.9% by 2028. So entering the market in 2024 when prices are low presents the opportunity for investors to benefit largely from capital appreciation.
Current property price discounts
The trend of declining house prices is coupled with a greater amount of seller discounts. Not only did prices drop between November and December, discounts on properties also reached a 5-year high. According to Zoopla, the average discount was 5.5%, or £18,000 off the asking price that sellers originally listed. These mild market conditions have led to a 6% increase in buyer demand. As buyer competition ramps up, investors should consider entering the market sooner rather than later to benefit from the current discounts that sellers are offering.
Interest rates are seeing improvements
After 14 consecutive hikes, in September the Bank of England decided to hold interest rates at 5.25%, they then held them again in November, and once again in December. Off the back of this, lenders started to drop their interest rates, resulting in an influx of sub-5% mortgage products. If the trend continues and the Bank of England continues to reduce the base rate, analysts suggest by the first half of 2024 there will be sub-4% products available in the market. The positive outlook on interest rates in 2024 compared to the 15-year peak we saw in July 2023 makes it a great year to lock in a competitive rate for your buy-to-let purchase. The combination of competitive mortgage rates and declining property prices increases how far an investor's capital can go, giving them access to better properties and increased potential for high returns.
Increased number of properties for sale
During the pandemic, the property market was full of competition which caused a reduced number of properties for sale. With all the recent changes in the market, there is now a healthier supply of properties with the amount of listed properties being at a 6-year high. The volume of property sales is also up from 2022 by 15%. Increased supply and demand presents new investors with more choices to find the right buy-to-let and shows that there is confidence in the market from buyers. Three and four-bedroom properties have seen the largest jump in the market, this offers landlords the chance to diversify their portfolio with potential HMO properties. The larger pool of properties available to buyers in 2024 compared to the past few years affords investors the ability to align their investing goals with the right property that meets these goals.
Rental demand continues to grow
Independent research published by the National Residential Landlords Association (NRLA) found that 71% of landlords reported increased rental demand this year, this has almost tripled since 2019 when only 22% expressed that they’d seen growth in demand. This thriving demand is felt most in the West Midlands, where 76% of landlords reported increased tenant demand. This is another reason investors can feel more certain about investing in property in 2024, as a sense of security is present in knowing that high returns are accessible due to the available demand for your investment. This data also highlights that some of the best investment property locations could be regional citicies – looking at buy to let properties in Birmingham and in the West Midlands can help investors unlock lower property prices and high rental demand.
New year, new buy-to-let property. The stability that has started to return to the property market near the end of 2023 is suggested to carry over in 2024. A buyer’s market is coming out of the reduced property prices, declining mortgaging rates, growing rental demand and increase in properties on the market. With capital appreciation of property expected to reach 17.9% in 2028, entering the market in the upcoming year would be advantageous to benefit from the forecasted capital growth.
Using this beneficial market to build a strong investment strategy which considers different types of rental properties, such as HMO properties and holiday let investments, and looks for the best investment property locations which fit your goals can help investors access more profitable buy-to-let.
