Adam’s market insights – New Year, New Market?

26th January 2024

The start of a new year always brings with it a flurry of review articles, forecasts, and opinions. Some useful, others more akin to soothsaying. The truth is forecasts can only ever be a best guess. Sure, tangible data can improve the reliability of these guesses, but over the past few years there seems to be more volatility than ever in the domestic and geopolitical landscapes, and this has thrown more proverbial spanners in works than make for a reliable forecast. Yet I feel inclined in my first article of the year to take my own stab at crystal ball work for the property market, and by using a basis of mostly pre-existing trends and stating the seemingly obvious, I hope that I can avoid any pitchfork baring rioters if I prove to be completely wrong.

Rents will Rise.
Ok. So, I’m starting with an easy win with this one. The UK remains exceptionally short on suitable housing. As I have detailed previously, this is the single largest contributor to the record rises in rental prices over the last few years, and by some margin. Increased costs bared by Landlords for compliance, section 24 tax, and mortgage interest rates a certain; play a role too. In some cases, it may be a pure necessity for a rental price to be increased for an investment property to remain tangible, but in other cases, these simply make for a more self-excusing rationale.
It seems likely that whilst rents will continue to rise, the rate of this growth should slow. Just as it is a simple market dynamic that increased demand and low supply means a rise in costs, excess growth can just as easily hit a firm ceiling, which in this instance will be affordability. Whilst inflation seems (dare I say it?) to be coming back under control, the cost-of-living crisis “bubble” which we seem to have been living in for a while now will invariably cap growth potential.
For at least the foreseeable, it remains the case, all be it a “good” problem to have as an investment Landlord, that rental demand is such that decisions on price ceilings will be centred around likelihood of tenants defaulting on payments and associated moral dilemmas, rather than whether it will limit prospective interest, as in the past.
So rental growth for 2024 is an easy forecast to make, but in my opinion the growth rate will level off a little. The exception being cyclical markets, such as student housing, where there is a fixed yearly opportunity to increase. Thus, rather than residential markets which ebb and flow throughout the year, we can expect, and indeed are already experiencing, a sharp jump.

Mortgage rates.
I’m afraid a new year does not mean the previous 18 months of obsessing over interest rates is at an end. Though we can likely be quietly optimistic on Mortgage costs in 2024. Already at the end of last year, rates have been dropping. As I have written previously, confidence has grown amongst major lenders. Even the Bank of England seem more optimistic with new inflation figures having convinced them to hold the base rate for a 3rd consecutive meeting, following a previous 14 rises.
It seems to be the general consensus of most brokers I speak and work with, that an arms race is bubbling, if not already underway. Whilst rate increases in the recent past have been based on the intent of Lenders not to loan too much money in uncertain times, or at least not cheaply, the simple fact is that they need to loan funds in order to make money, and as it is already evidence that confidence is returning. We can safely assume that these lenders will have some quotas they have missed on mortgages granted, and will hopefully be fighting with one another in a race in the other direction on pricing. Perhaps it would be too optimistic to hope for sudden and large reductions, but we should at least be heading in the right direction well into the spring and perhaps even early summer. The second half of the year is much harder to predict, as there is almost always a response by lenders at the start of election campaigns and who sits ahead in the polls at the time of BOE base rate announcements.
Owing to the above point, you will have to forgive me for refraining on pinning colours to the mast on Mortgages rates for the entire year, but I will be bold enough to state I can only see reductions for the first few months.

Capital Values
I have left the most complex until the end. Unlike other property related matters, I often find capital value to be slightly less routed in logic… Of course, there are regular key factors to keep an eye on, and based on which certain conclusion may be obvious. However, when it comes to both home and investment buying, human nature plays a role, with buzz words like “timing the market” and I don’t think it’s an oversimplification that herd mentality plays a large part.
I have written in the past about how such mindsets can produce activity which is in contract to the logical assumption we could make based on market influences. For instance, if mortgage rates were to be dropping, it could be sensibly deduced that buying activity would increase hand-in-hand. However, we British seem to think we are always smarter than each other, and some may take reducing rates as a reason NOT to enter the market instead waiting for further reductions, chasing the best deal. Don’t get me wrong, there are a multitude of reasons why home buyers move and their timing for doing so. Equally for investment property, whilst this can generally be considered a less emotional purchase, or less based on family or personal circumstance, there are always still ties to one’s life events and sourcing of funds, or decision making, be that for future planning, or reactive to sudden events or news.

Ok. So that’s the disclaimer out of the way. But what do I actually think will happen with prices?

Not a lot.

… During 2021 and 2022 there were record rises in property values. Through 2023 we then experienced drops in value. Sure, these were nowhere near as dramatic as many forecast (not myself I will point out – I was quite on the nose with my 2023 forecast…), but still we have had a few years of ups and downs. My prediction (and hope) is for more stability. As already detailed, with interest rates predicted to reduce, or at the very least stop getting more painful, those who perhaps had buying plans on hold may return to the market. I do think herd mentality and self-soothsaying will play a role though. If we do indeed see a rise in buying activity in these early months, then we must also consider those “would be” sellers who had listing plans on hold having been told by Johnny with the cheap hair cut from Badger and Daughters Estate Agents that it is a tough market.
So, for residential housing, my headline predictions will be a higher number of transactions taking place, with a higher number of listings. With pricing staying largely the same. Any movement could in truth be in either direction (I can’t lose with that statement, right?), but likely not by much more than 2%. Thats as long as there are no new European Wars, and the Moster Raving Loony Party don’t win a landslide election this year…
Investment property should be a little easier to predict. Again, there are always emotional and personal elements relating to any higher value purchase of goods and property, but very generally speaking investment property decisions are at least slightly more rooted in the numbers. To that end where mortgage rates do continue to drop, and rents increase, that’s two very strong and vital indicators for investment growth. That allows me to be marginally bolder and forecast GROWTH (yes, I said it!) for investment properties. Again, nothing too dramatic though, and 2-4% seems reasonable level to hope for. Generally speaking, the larger growth could be associated with rental property which is most far removed from the residential market. Such as larger HMOs, mixed use Freeholds and other categories which are more rooted as buy-to-lets. Smaller Investment properties and those which will also attract residential buyers will be a little more tethered to residential prices. That’s all as long as there are no new European Wars. This could also be curtailed by surveyors & mortgage valuers, who for a while now I have assumed to all be members of the Monster Raving Loony Party….

So, there we are! Sharpen those pitch forks and switch on your radio/news channel of your choice and wait for me to be wildly wrong. At the very least, and as always, I hope to have highlighted the myriad of elements at play a role in this strange industry, and how even logical and seemingly safe assumptions can be proved wrong. More specifically values for both rental and sale should be mostly dependant on local context, the property itself, and your personal goals and desires.

As always, if you have not yet had another of my waffle, my phone line and email inbox are always open should a more localised and context-based conversation be of use to you and any decisions to be made, or longer-term planning. As much as it may be a cliché, the start of a new year remains a good excuse to review your property related dealings, be that investment property, or your own home.

Adam’s 2024 Forecast:

  • Continued rental growth, but at a reducing rate. Larger jumps in cyclical markets such as student property.
  • A Mortgage Rate arms race between lenders leading to improved borrowing costs and options, at least until general election uncertainty gets into full swing.
  • Relative stability for Residential property values, with perhaps a 2% swing in either direction.
  • An increase in value for larger Buy-to-Let properties which are less tangible as family homes, such as HMOs, but unlikely to be any more than 4%.

Adam Coffin
Senior Sales Consultant
01273 645797 (ext 2020)