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Where can you find property investment opportunities as the market recovers?

As the UK housing market recovers moving into 2024, Paresh Raja, CEO of Market Financial Solutions, looks at how and where you can find the best property investment opportunities. 

It is no secret that the property market has faced a slowdown over the past two years as investors, buyers and lenders alike have had to adjust to the dual challenges of soaring inflation and rising interest rates.

Despite the Bank of England’s decision to pause its rate-hiking cycle in August 2023, the base rate remains at 5.25%, a significant contrast to the sub-1% levels familiar to borrowers from 2008 to 2022. Furthermore, the latest CPI print revealed an unexpected increase in UK inflation, serving as a timely reminder that the looming threat of a cost-of-living crisis persists.

Nevertheless, while we are by no means out of the proverbial woods, the economic outlook is undeniably more stable than it was just 12 months ago. As such, many property investors will likely be considering whether now is the right time for their next purchase. For those who think it is, the key question is the type and location of the property investment they pursue.

Improving economic climate opens door to new opportunities

Firstly, the lending markets have overcome much of the turbulence of the last two years, and products have been more accurately calibrated in line with the elevated base rate on Threadneedle Street.

In the mainstream mortgage markets, for example, Moneyfacts’ analysis indicates a decline in average fixed-rate mortgages to a seven-month low. Similarly, adjustments have been made in the specialist lending sector, with lenders initiating a range of reductions across their bridging and buy-to-let (BTL) mortgage offerings in recent months.

Overall, there appears to be a growing inclination to lend as economic conditions show signs of improvement – a positive development for landlords, investors, and buyers alike.

With a more stable lending landscape in place and rate cuts expected by the end of the year, there is reason for optimism as we assess the outlook for property investment in 2024.

This is supported by encouraging data from prominent house price indices. For instance, Halifax’s House Price Index revealed a 1.1% increase in average UK house prices in December 2023, marking the third consecutive month of positive growth.

Reflecting the more optimistic outlook in the market, Knight Frank recently revised its forecasts for the upcoming year, adjusting from an initial prediction of a 4% decline to a 3% increase in house prices in 2024. Meanwhile, Savills is projecting a gradual upward trend in prices over the next three years, with growth hitting 6.5% by 2027.

What areas and assets have the best investment potential at present?

The decline in property valuations seems to have bottomed out, with growth expected in the months and years ahead. So, many investors will be seeking a property investment that could provide them with the strongest returns as the market recovers.

As ever, it is important that investors consider all the factors from types of asset class to geographical location that will impact potential profitability over the medium-to-long term.

For instance, when analysed by region, market growth figures display notable various across different parts of the country. In the North East, for example, 2024 is expected to bring with it a 1.5% decline in prices, but will rebound with a growth rate of 4.5% in 2025.

In the years following, property prices in the North East are forecast to continue to grow robustly in 2026 (5.5%) and 2027 (+7%). Consequently, investing in a property in the North East has the potential to yield investors a compounded capital return of up to 21.4% by 2028 if they were to invest this year.

For investors looking to begin or build a buy-to-let (BTL) portfolio this year, their focus might be on regions that hold the most promise for rental yield growth. For instance, investors with rental properties in Ceredigion (Wales) will have seen their yields rise by 3.8% in the last year alone as the average for the area hit 10.8%.

For landlords looking to secure a BTL property investment, pinpointing the areas that are going to enjoy similar growth in the years ahead will be best placed to benefit from a recovering property market.

Looking ahead, the Royal Institution of Chartered Surveyors (RICS) anticipates a 5% growth in average rents across the UK over the next five years. That said, certain market segments are expected to outperform the overall market. Prime outer London, for example, is projected to experience an 8% price increase in 2024, outstripping the national average and therefore indicating promising property investment potential.

Elsewhere, for landlords enticed by HMOs (houses in multiple occupation), then the data suggests that investing in one in Wales could provide the best potential yield. Figures from last year, for example showed that Welsh HMOs bring in a yield of 9.01%, while HMOs in London garner a more modest 6.14%.

Looking to a little later in the year, student accommodation might appeal to some investors. Indeed, most universities’ term times start in September, giving landlords a little time to see how interest rates behave before committing to a student BTL, for instance.

For these types of property investment, location is likely the most important factor to consider, as opting for a student property investment in a popular university city is likely to provide the best returns and demand. Liverpool, for example, is ranked as the second best student city in the UK and enjoys an average yield of 7.92%, outperforming the rest of the country which earns an average of 4.5% to 6.5%. Leeds, Newcastle and Manchester are other prominent cities with large student populations.

Financing a property investment in 2024

Lenders are gearing up for a surge in demand as the economic landscape and property market continue to recover, so we are likely to see them introducing a much wider range of competitive rates and innovative products in the months ahead. However, it’s important to note that a financial product’s value extends beyond interest rates and loan sizes.

Indeed, economic challenges remain, so the flexibility, speed, and overall service that a lender can provide is likely to be of the most value while the market recovers. Consequently, brokers and their clients should prioritise finding lenders that are able to understand and address their unique needs, no matter how complex their case might be.

Paresh Raja is the founder and CEO of Market Financial Solutions (MFS), a London-based specialist lender that provides bridging loans and buy-to-let mortgages. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.

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