Over the last few years, the UK property market has experienced lots of change, with periods of extremely high activity during the pandemic, followed by a pivot by many would-be buyers and investors.
In this article, we’re going to take a look at the current conditions of the UK property market and see whether now is a good time to invest in property.
The post-pandemic boom
Prior to the pandemic, the Bank of England’s base rate had fluctuated between 0.25% and 0.75%. Mortgage rates were extremely attractive as a result; for someone with a 20% deposit, the average 5-year fixed mortgage rate was sitting at just 2.13% in 2019.
However, the Bank of England’s decision to cut the base rate to just 0.1% in March 2022 made mortgages even cheaper, and the pandemic fuelled a buyer frenzy, with demand heavily outstripping supply. Low rates combined with buyers rushing to buy properties with outside space had a direct impact on property prices, eventually causing the average property price in the UK to hit an all-time high of £294,844 in June 2022.
After a series of interest rate hikes the effects were felt in the property market, and combined with a cost of living crisis, the market began to stall and UK house prices began to fall through 2023 and the first part of 2024. Many sellers had to be more realistic about their asking prices, and the days of multiple offers and a bidding war to buy a property hit a hard pause.
The current state of affairs
Even though there has been a lot of uncertainty in the property market, not helped by the disastrous mini budget of October 2022, the UK market has proven time and time again to be extremely resilient. The impact of higher interest rates means the market has slowed down; however, this also presents an excellent opportunity for investors as it gives more room to negotiate and acquire properties.
According to the Homeowner’s Alliance, the average 2-year fixed mortgage rate is 4.93%, which is a big drop from the July 2023 peak of 6.86%. When we look at how the UK property market has flourished in previous years, even with higher interest rates, it is testament to the fact that it’s always a good time to invest in property. If rates are higher, there are more opportunities for investors to buy properties for a better price, and benefit from increased capital appreciation in the long run. If rates are lower, borrowing costs are less and this improves cash flow and the net yield for investors.
Commercial and residential opportunities
Even with higher rates than the pandemic era, investors can still achieve excellent yields on buy to let property investments.
Firstly, one could argue it is still a buyer’s market even though rates are starting to come down. This means that investment properties, often being sold by other landlords and businesses can be negotiated on, effectively giving would be investors instant additional equity on the day they complete their purchase.
Secondly, rents in the UK have been rising at an unprecedented rate. The Office for National Statistics disclosed that UK private rents increased by 9% between February 2023 and February 2024. The lack of rental properties available across the country means that rents will only continue to rise. Therefore, the typical buy-to-let property rental yield of around 5%-8% is still very achievable, even with the currently higher rates. In fact, as rates start to come down, rents will still continue to rise, so higher yields could become the norm for many investors.
For those considering commercial properties, there is often even more room to negotiate as there is typically less competition and more choice due to many businesses going fully online or closing down post pandemic. As it stands, there are many commercial opportunities as many are currently sitting empty. Historically, commercial properties have provided investors a healthy return on investment, often reaching the 10% yield mark. With the benefit of longer leases from larger companies on a full repairing and insuring basis (FRI), commercial properties can be an excellent investment indeed.
Conclusion
Although the UK property market has had its ups and downs, it’s no secret that both residential and commercial property have proven to be, and will continue to be a great investment. Even with higher interest rates, which, are likely to come down as we’ve already seen, the returns are still strong.
A recent article by the Guardian mentioned how UK house prices are currently growing at the fastest annual rate since 2022, so now could be the perfect time to invest as prices begin to rebound and potentially, reach record highs once again.
When we combine healthy yields and the incredible capital appreciation that UK property has, the classic adage of “don’t wait to buy property, buy property and wait” certainly comes to mind.