Since this guide was written, the UK residential property market has seen significant change. As a result of the cost-of-living crisis and turbulence in the financial markets after the September 2022 mini-Budget, conditions became more challenging for investors. However, the market has remained surprisingly resilient and many indicators now suggest that the outlook may be improving.
In March 2023, ONS released its January house price index, which showed that the year-on-year rate of growth had slowed to 6.3%. This is slower than during much of 2021 and 2022 but, as many commentators have discussed, this represents a slow readjustment towards longer-term norms. There was no price-crash as some pundits had suggested and instead, the market has continued to be characterised by resilience and a good deal of stability. This is underpinned by an enduring imbalance between intense demand for property and very restricted supply. As a result of this imbalance, many sources expect capital values to return to growth in 2024 and to remain on an upward trajectory thereafter.
Despite the cost-of-living crisis, rental values have grown very quickly, more or less in line with inflation, which was running at just over 10% in the first quarter of 2023. In March and April, different sources quoted growth rates of between 8% and 11%, with even higher rates in certain towns and cities.
The Bank of England announced a succession of rises in the Bank Rate in 2022 and 2023. In March 2023, it climbed to 4.25%. However, while the base rate was rising, lenders were actually cutting some of their rates. As the dust settled after the mini-Budget, market competition prompted banks and building societies to introduce more attractive rates. Moreover, in April 2023, the IMF announced that it regarded the current inflationary conditions as a short-term aberration and expected natural interest rates to fall slowly across all developed nations. The forecast, which extends as far as 2050, suggests that investment conditions could improve steadily over the next decade and beyond.