uk house prices capital appreciation

Will investors see more capital appreciation as interest rates fall?

The rate of capital appreciation is expected to fluctuate to some extent throughout the course of a property investment, and interest rates can have an impact. 

Capital growth or capital appreciation are one of the key ways investors can expect to realise their returns, whether through ‘flipping’ a property after owning it for a short length of time – normally less than a year – or owning it for a prolonged period as house prices rise.

For example, UK house prices have increased by an average of 73% in the 10-year period between 2013 and 2023, according to data from the Office for National Statistics (ONS). During this time, there were periods of rapid acceleration – particularly post-Covid – and periods of stagnation, but ultimately, property investors who purchased homes 10 years ago and held on to them are likely to have seen significant capital appreciation.

These profits exist alongside any annual returns made through rental yields for investors who let out their properties. Location plays a major role, too – the north of England has seen much bigger percentage price rises than many parts of the south in recent years.

Predicting future house price changes is extremely difficult, as a wide range of factors can influence the market, from policies to wider global issues. At the moment, the UK is experiencing what many are describing as a correction after the huge house price surge that happened in the wake of Covid, alongside more challenging economic conditions, with most analysts expecting a return to steady growth.

 

What can affect capital appreciation?

For property investors seeking the maximum opportunity for capital appreciation, there are numerous things to take into account. Location, as mentioned above, plays a role; areas undergoing significant regeneration and improvement, for example, are likely to see house prices rise more swiftly.

The length of the investment period is another factor. As the ONS’s data shows, holding onto UK property for a longer period of time normally leads to greater gains. Some investors successfully buy cheaper property, add value through refurbishment, and sell for a profit, known as flipping.

At the moment, one factor that many believe is affecting the market and capital appreciation prospects is interest rates. After sitting at historic lows of 0.1% for a number of months, the Bank of England began hiking rates to their current level of 5.25%, where they have remained since last summer.

This has led to higher mortgage rates, which affect affordability as well as general market sentiment, and for property investors this is something to consider when working out how profitable an investment is going to be and how much capital appreciation you will see in the short, medium and long term.

 

The outlook for property prices

At the moment, the financial markets are expecting the Bank of England to reduce interest rates a number of times over the course of this year, and predicting that they will have been reduced to 3% by 2025. This will depend on the wider economic conditions.

Sarah Coles, head of personal finance at Hargreaves Lansdown, pointed out that recent house price figures are largely the result of the market responding to mortgage rate fluctuations.

“Mortgage rate rises have finally taken a toll on the housing market. Rising rates haven’t been an overnight sensation, but gradual upwards nudges through February and March have taken the average two-year fix from 5.56% at the end of January to 5.81% by the end of March.

“Rates have been rising ever since the banks decided they’d got ahead of themselves in assuming the Bank of England was going to cut rates in the spring. Now they’re convinced that rates will stay put until June or August, they’re boosting mortgage prices to reflect the new assumptions.

“Through February we had the price momentum of buyers who’d already agreed cheaper mortgages in January. Now that’s petering out, and prices have fallen.”

However, she believes that the current stagnation should be relatively short-lived, meaning short-term capital appreciation should be on the cards again before too long.

“There still remains a decent chance that this isn’t the beginning of a long run of price cuts. Prices are still higher than this time last year, and if we get the rate cuts we’re expecting, mortgages could get cheaper in the coming months, rejuvenating the market again.”

Keep up to date with UK property market news here.

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

STAY AHEAD OF THE MARKET

Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment

FIRST FOR NEWS AND KNOWLEDGE.

Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:

 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

 

+852 6699 9008

Open from 9am-6pm HKT