Buyers seeking the most promising property investment options for the year ahead may see the greatest gains in the mainstream residential market.
From a property investment perspective, there are plenty of positives for investors looking to maintain or extend their portfolios in the year ahead.
Investors and homebuyers alike have until the end of March to secure their purchases before stamp duty thresholds and rates revert to their previous levels – and although the property tax has been increased to 5% for those buying an additional property, this is expected to do little to dampen appetite as the fundamentals of the housing market remain strong.
Supply remains constrained in both the sales and the rental market, supporting prices in both sectors, with landlords experiencing record-high rental yields due to extremely strong tenant demand. This is particularly the case in the north of England, where yields have been outpacing the south.
The north has also seen the greatest growth in property prices, and this is forecast to continue, with both the North West and the North East in particular expected to continue to be key property investment destinations as a result.
Housebuilding remains high on the agenda of the government, with the Prime Minister vowing to unlock planning blockages to get more sites developed across the country, alongside greater investment in the north of England. This is likely going to increase the number of property investment opportunities in towns and cities where more sites are being unlocked.
Higher mortgage costs have had an impact on some parts of the market in terms of affordability, but these have already reduced over the course of 2024; and analysts expect the Bank of England to reduce rates in 2025, which should spur on competition in the mortgage market and make borrowing cheaper.
The outlook for house prices
Savills has released its latest predictions for the UK property market, and it has penned the greatest level of growth in the mainstream markets as opposed to the prime sector.
The agency notes that, during “normal” housing market recovery, the top end of the market would be the first to recover as prime property buyers tend to be more sentiment-fuelled. As confidence rises, sales and values at the upper end of the market tend to pick up, while the lower end can take longer to get back on track.
However, numerous factors have combined to drive greater growth in the mainstream markets, such as the higher stamp duty surcharge for additional properties, as well as changes to non-dom taxation, and changing VAT rules on school fees. This means property investment may be more active in the lower-priced markets.
Over the next five years, Savills predicts mainstream UK house prices will rise by a cumulative 23.4%, with a 4% increase next year. Prime regional prices are forecast to rise at a slightly slower rate of 18.2%, with just a 2% increase in 2025. Just behind this, London mainstream prices could climb by 17.1% by 2029.
At the other end of the scale, prime Central London is expected to fare the worst, with total accumulated growth of just 9.6% over the next five years. This is largely due to a pull-back next year, with prices expected to fall by -4%.
Source: Savills
Other property investment forecasts
Estate agency Knight Frank also posted its housing market predictions this month, with a five-year forecast that can also be used as a property investment tool to gauge potential returns.
It predicts that UK house prices will increase by a cumulative 19.3% between 2025 and the end of 2029. This is down slightly on its August predictions, which had set out total five-year growth of 20.5%.
The slight downgrade is based on uncertainty surrounding the outcome of Labour’s Budget, although Knight Frank’s Tom Bill pointed out that assessing the full impact of the Budget at this point in time is “challenging”.
Tom Bill added: “The changes to our forecasts are not dramatic and we will be in a better position to assess the outcome of the Budget and other policy decisions early next year.”
The agency now expects prices to increase by 3% in total for 2024, followed by 2.5% by the end of 2025, 3% for 2026, 3.5% for 2027, 4% for 2028, and 5% for 2029. This demonstrates property investment prospects slowly increasing over the coming five years in terms of capital appreciation.
