Although housing market forecasts can only use current knowledge to form their basis, they can be a useful tool to assess UK property investment prospects.
A huge range of factors will determine how a property investment performs over the short, medium and long term, depending on what your investment goals are.
The primary aspects to consider are the property’s location in terms of both where it is in the country and whether it is located in an up-and-coming area; the strength of demand in the rental market; the price and any associated borrowing costs; property type and target tenant type; and whether it may require further investment on improvements or repairs.
This is why property investments tend to be considered on a case-by-case basis, with the investor’s personal and financial circumstances, and ultimate end goal, also having an impact.
However, it can be useful to look at property market forecasts, as these tend to take into account wider economic and political factors that could have an impact on how the sector fares. This includes things like any regulatory changes either implemented or impending, as well as mortgage rate trends and expectations, which can impact affordability and prices in the housing market.
Knight Frank regularly posts its five-year forecast, which is created by analysts taking into account all these factors and more. It can be a helpful tool for both homebuyers and landlords looking to lock in a property investment, or those with existing portfolios.
The latest five-year forecast
Knight Frank predicts that UK house prices will increase by a cumulative 19.3% between 2025 and the end of 2029. While this is down slightly on its August predictions, which had predicted total five-year growth of 20.5%.
The slight downgrade is based on uncertainty surrounding the outcome of Labour’s Budget last month, 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.”
Mortgage rates increasing slightly since the Budget was announced have played a role in the slightly lower predicted house price growth. However, they are still at a much lower level now than they were a year ago, and with ongoing inflation stability, they are still expected by many analysist to continue to come down over the next year.
This could mean that at the next assessment, Knight Frank revises its growth outlook upwards. From a property investment perspective, the result still demonstrates a strong level of house price growth; and for landlords, this comes alongside strengthening yields in the rental market, which is an important factor for the overall returns of a property investment.
Currently, house prices are predicted 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.
Rental property investment outlook
The majority of property investments are rented out, generating regular income through rental payments. This is an important part of a property investment’s profitability, with properties in areas of strong tenant demand generally providing the best returns.
Knight Frank’s rental market five-year forecast has edged slightly in the opposite direction of house prices, with a revision upwards from its previous predictions in terms of rental prices.
This is due to some ongoing uncertainty around the Renters Rights Bill, which could cause some landlords to hold off on making new investments until the new regulations become clearer. This could have the knock-on effect of pushing up prices, which is what’s reflected in Knight Frank’s figures.
By the end of this year, UK rents are expected to have increase by 8% annually. From 2025, the expectation is for these to fall back to more ‘normal’ levels of growth, albeit higher than previously predicted.
For 2025, Knight Frank expects rental growth of 4%; followed by 3.5% growth in 2026, 3.5% growth in 2027, 3% growth in 2028, and 2.5% growth in 2029. This adds up to a cumulative total of 17.6%.
Tom Bill commented: “We believe slowing wage growth will increase affordability pressures for tenants, which means rental value growth is expected to calm down from the heights of the pandemic, a period that was also distorted by a lack of supply.
“Rightmove data shows that new UK rental listings are still a fifth below pre-pandemic levels and, combined with the uncertainty of the Renters Rights Bill, we expect mainstream rental value growth between 2025 and 2029 (17.6% in the UK) that is still marginally higher than the historical norm.”
If you’re looking for a property investment opportunity in the UK, get in touch with BuyAssociation today to speak with one of our experienced investment consultants, or browse some of our current projects here.
