Mortgage Rates Have Impacted Market But Tide Should Start Turning in 2024
According to a new report by Zoopla, discounted house prices and falling mortgage rates are putting the UK property investment market on course for an improvement in demand and sales volumes later next year.
This year, the market has been impacted by higher mortgage rates, as buyers have had fewer funds to work with when searching for a property.
This has led to a fall in demand and repricing of homes across all price bands, with sellers offering the most significant discounts in five years.
However, the report states that while this modest downward pressure on property prices will continue into next year, the tide should begin to turn later in 2024 as inflation keeps falling.
Read on for more information on how this affects UK buy-to-let going forward.
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Seller Discounts May Tempt Buyers Back into the Market
In the first half of 2023, the average discount offered by sellers was 3.4%. This month, it has risen to 5.5%, or £18,000 off the asking price. Looking at London and the South East in particular, the average price reduction is 6.1% (£25,000 off the asking price), while across the rest of the UK the average discount is 4.8% (£11,000).
This repricing will continue into next year, and these discounts, coupled with falling mortgage rates, will tempt buyers back into the market.
According to Richard Donnell, Zoopa’s Executive Director of Research, discounts should return to normal levels of 3-4% as more sellers adjust their prices.
While bearish market analysts claimed house prices would come tumbling down this year, these reductions represent a ‘soft adjustment’ in prices, according to Zoopla. The lower prices may lure more buyers into the market, eager to take advantage of the discounts while they last.
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Is the London Property Market On Its Way Back?
Zoopla’s latest report also offers some interesting insights into the London buy-to-let property market. While some investors used to see London as the go-to place for the most lucrative and stable ventures, in recent years, many have started looking elsewhere for better deals. This was due to the premium price tag on London property, meagre rental yields, and sluggish capital growth.
Many buyers have begun looking towards commuter towns rather than more central areas, but according to Zoopla’s report, London has been avoiding the accelerated price falls seen in the broader South East and surrounding commuter areas. The slow price growth over the last seven years (just 8% compared to the 28% for the rest of the UK) has given London an image of better value for money.
New sales have sprung back in London more than in any other part of the country over the last two months, and in the EC postal area, house prices have been up 0.6% over the past year. This could also be partly due to reduced levels of remote working, making inner-city London more in-demand.
Despite this boost for the property market, it’s doubtful that London property investment will overtake the North when it comes to high-value properties and capital growth. While London has displayed subdued price growth over the last few years, the difference in average property prices is still vast.
According to the UK House Price Index, the average house price in London was £539,074 in August 2023. Compare this to Liverpool, for example, where the average cost is £179,129, and it’s easy to see why many investors are still being drawn elsewhere.
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