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UK Economy Climbs Out of Recession: What Does This Mean for Buy-to-Let Investment?

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    Official Figures Show UK Economy is Improving Faster Than Expected

    Official figures published last week by the Office for National Statistics (ONS) show that the UK economy is now no longer technically in a recession. Economists had predicted the quarterly growth of gross domestic product (GDP) for January to March to be 0.4%, but it surpassed these forecasts and grew by a better-than-expected 0.6%.

    The figures also revealed better growth than anticipated on a monthly basis. GDP grew by 0.4% during March, higher than the projected 0.1%. February also saw growth of 0.2% after a forecasted 0.1%.

    A recession is defined as two consecutive three-month periods when the economy shrinks. The UK was declared to be in a technical recession in February after GDP growth fell by 0.3% between October and December, following another decline of 0.1% between July and September. The main contributor to this recession was said to be reduced consumer spending power due to high inflation and energy bills. It was also blamed on months of bad weather discouraging high street shopping.

    The property market can be affected by wider economic fluctuations, so what does this economic upswing mean for buy-to-let investing?

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      How Do Recessions Affect the Property Market?

      One way that recessions affect the property market is by impacting house prices. This depends on the severity of the recession. If there is a prolonged slump and rising unemployment, house prices can fall, and this negative effect will be more pronounced in less desirable areas. For example, historically, it has been less likely to hit investment opportunities in London, Manchester, or other in-demand markets. However, in a very severe recession, property hotspots can still feel the ill effects, just not as much as other more susceptible markets.

      Interest rates also usually fall during a recession, making it more affordable to borrow money and credit, encouraging spending. If the cost of borrowing is reduced, banks and building societies may offer better mortgage rates. However, most recessions don’t last long enough to affect mortgage rates significantly.

      Further reading: Find out about the ins and outs of property investment, such as the rules surrounding living in a buy-to-let property and buying property through a limited company.

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      What is the Outlook for the Buy-to-Let Property Market Now?

      As mentioned, a recession would have to be prolonged to impact interest rates, and the Bank of England’s base rate has been at a 16-year high since August, holding steady at 5.25% despite the technical recession. This has contributed to the slowdown in the housing market in the past year. However, many forecasters, such as Savills, have stated that they anticipate interest rates to fall later this year thanks to the improving economy. The Bank’s own economic report also shows a more positive growth outlook this year after the stronger-than-expected first quarter.

      2023 was a challenging year for the housing market, with subdued growth in some areas and price dips observed in the worst affected regions. However, with the improved economy and promising signs observed in housing market activity during the first quarter of this year, a return to growth has been predicted. Savills has even recently upgraded its forecast to reflect the stronger growth predicted in the mainstream residential market this year and in the next five years. The previous projection for UK average price growth was -3.0% negative growth, but they now believe there will be positive growth in 2024 of 2.5%.

      To learn more about the UK property market, look at some of our recent buy-to-let area guides highlighting topics such as available investment property in Wolverhampton and Aberdeen investment properties.

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      Jessica Ferris

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      Jessica is a property content writer at RWinvest. Keeping a close eye on the UK property market, Jessica helps our readers stay informed and up to date on the latest market news and statistics.