Twenty years of property investment
February 28, 2023
Vesta is a marketplace for buying and selling rental properties and we believe that it is important for our customers, who have many different investment strategies and views, to have a deep understanding of the wider property market.
In this article, we reflect on the UK market over the last 20 years or so. It's fair to say it has been a rollercoaster ride for property investors over this period, with many highs and lows along the way.
Here's a brief overview since 2000:
2000 - 2007
The UK property market saw a period of rapid growth, with house prices increasing at an average rate of 7.5% per year. This was due to several factors, including low-interest rates, competitive offers from lenders, a strong economy, and an increasing population. As a result, many people saw property as a safe and lucrative investment, and the market boomed.
2007 - 2008
The global financial crisis hit, and the UK property market was no exception. House prices fell dramatically, and many people found themselves in negative equity. The primary drivers included a massive drop in consumer confidence, the credit crunch, lenders being far less lenient, and of course the recession. Some savvy property investors pounced on this downturn and bought discounted properties. In certain locations, investors who had the cash were able to buy whole streets and started the process of regeneration for future renters.
2009 - 2012
The UK property market began to recover, but growth was slow. House prices increased at an average rate of just 1% per year, and the market was still affected by the aftermath of the financial crisis. Lenders were still very cautious and had to operate in a new regulatory environment which meant 90 - 125% loans, that had been available prior to 2007 were no longer available, nor acceptable within the new legislation. This made it much harder for first-time buyers to get into the market and landlords continued to purchase and renovate properties with the growing demand from renters.
2013 - 2015
The UK property market picked up the pace, with house prices increasing at an average rate of 5% per year. This was due to a number of factors, including a rapidly growing economy, low-interest rates, and ever-increasing consumer confidence. Many lenders, who had resolved the losses from the previous decade, also improved their product offerings and there was a real focus on first-time buyers.
2015 - 2019
The UK property market continued to grow, with house prices increasing at an average rate of 3% per year. This was due to a combination of factors, including a strong economy, low-interest rates, and high demand for housing. At this point in time, the government started promoting home ownership, and landlords, arguably unfairly, started bearing the brunt of the blame for house price increases. It was at this point that a host of negative landlord stories started to proliferate the press and anti-landlord sentiment began to grow. It is fair to say that there were some 'bad apples', however, all the research indicated that the vast majority, well over 95%, of renters were very happy with their landlords and the properties they lived in. However, new government policies were introduced to disincentivise private landlords from investing in property, for example not being able to deduct mortgage interest in your tax returns, etc. with the end goal to help the push for home ownership which was a key vote initiative.
In hindsight, this tactic has had a massive impact on the housing market and has led directly to the current housing crisis and shortage of rental property across many key areas across the UK. Landlords started selling and exiting the market. There was no longer an incentive to buy, renovate, and improve the housing stock for renters! The new focus was on institutional investors building new 'built to rent' schemes and they simply could not build enough properties to meet demand. In addition, the lack of space in prime areas meant most of the new builds were not being built in key areas where there was high demand for rentals.
2020 - 2023
The Covid-19 pandemic had a profound effect on the UK property market. Initially, the market saw a slowdown, with transactions falling due to a variety of reasons and house prices dropping. Then certain properties and certain areas, with the introduction of work-from-home policies, started seeing massive increases in price and the bigger cities saw a decline in values.
Just as the economy began to recover and the market started picking up again, with house prices increasing and demand for housing remaining high along came the 'mini budget' from the short-lived Truss government. This badly thought-through initiative had a catastrophic impact on the property markets, interest rates, and consumer confidence which resulted in a significant stalling and stagnation in property prices and transactions.
Added to this the post-Covid migration back to offices changed the demand and values in some more remote areas and inner city and commutable properties started to bounce back. This is still happening in London with a steady demand but with a shortage of property rents are forcing people further out!
So far the market appears to be slow for owner-occupier demand however we are still seeing a massive exodus from the rental sector with landlords pouring out of the market due to higher interest rates, adding to this not being able to deduct interest costs becoming an even bigger factor for many, more regulation and potential changes to energy performance ratings with properties needing to be at least a C to sign up new tenancies by April 2025. Less rental properties mean higher rents and this housing crisis is only going to get worse!
At Vesta we now have over £300,000,000 worth of properties listed in 2023 and the good quality investment opportunities are not sitting around for very long, with strong buyer demand. Rents are going up and that is always attractive to landlords! Who knows what might happen next...What is your investment strategy?
We are committed to providing our customers with a robust and efficient marketplace for buying and selling rental properties. We believe that the UK property market offers many opportunities for investment and growth, and we are here to help you navigate these opportunities and make informed decisions on the properties you want to buy or sell.