UK property market in a state of flux

The UK property market is currently in a state of flux with the cost-of-living crisis putting a strain on household budgets.

In addition, the Bank of England has raised interest rates several times since December 2021, to try and bring inflation under control, and this has led to higher mortgage rates, making borrowing money more expensive.

The latest house price data for the UK shows that house prices fell by 0.3% in April 2023 compared to March 2023. This is the first monthly fall in house prices since October 2021. The annual rate of house price growth has also slowed, from 10.8% in March 2023 to 9.1% in April 2023. This is the slowest annual rate of house price growth since January 2022.

Despite the slowdown in house price growth, the UK property market remains strong overall. There is still strong demand for property and supply is limited. Zoopla's latest House Price Index highlighted that property stock on the market is down nearly 30% in April.

This is likely to continue to support house prices in the short to medium term. Usually, when property for sale stock levels drop prices tend to trend upwards as buyers compete, however, this is clearly being impacted by both the cost-of-living crisis and increasing mortgage rates.

Demand for rental properties in many areas continues to grow and this is being influenced by several factors - 

• An aging population in the UK means more people are looking for rental properties as they downsize or move into retirement.
• Rising house prices and the increasing cost of mortgages mean it is now more difficult for the younger generation to get onto the property ladder, which means more people are renting for longer.
• Increasing population, hybrid working arrangements, and a more transient workforce all influence demand.

This increased demand for rental property alongside increasing cost and mortgage rates is forcing up rents in many areas.

The upward trend on yield is attracting attention from new investors who, considering increasing market volatility impacting shares, stock and cash, and the current inflationary environment, are looking to diversify their investment portfolios, with a new focus on real estate, and more specifically, UK property.

Property is seen as a good asset class to diversify into, as it has historically performed well over the long term. It is also a tangible asset, which means that you own something physical, and this can be reassuring in the current environment, as it provides a degree of security.

Some specific areas in the UK that have shown positive rental growth and have been attractive to investors include:

• Birmingham - a large and growing city with a strong economy. It is also a popular destination for students and young professionals, which means there is a high demand for rental properties.
• Manchester - is another large and growing city with a strong economy. It is also a popular destination for businesses, which means there is a high demand for office space and increasing employment could lead to increased demand for residential properties in the area.
• Leeds - is a large city with a strong economy and a growing population. It is also a popular destination for students, which means there is a high demand for rental properties.
• Liverpool - is a large city with a strong economy and a growing population. It is also a popular tourist destination, which could lead to increased demand for short-term rental properties.
• Glasgow - is a large city with a strong economy and a growing population. It is also a popular destination for students, which means there is a high demand for rental properties.

These are just a few examples of areas that have been and may continue to be attractive for property investors. It is important to note that demand for rental and achievable yield varies from region to region.