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The UK’s housing market has been in the spotlight lately, with multiple dynamic changes, soaring prices, and spiking demands making headlines. As a Brit, you must have noticed some of these aspects, especially the spiking property prices, and asked yourself several questions. First, is entering the market now a good idea?
Before deciding whether to invest in the current UK housing market, you must understand why there’s a boom in this sector.
In This Guide
Main Factors Fueling the Boom
A housing market boom is a significant economic event that can’t occur without the influence of factors like spiking employment and income levels. Having said that, the InvestingGuide team researched the current trend extensively and discovered numerous underlying factors causing it, including:
- Reasonably-low interest rates
Interest rates have been significantly low in the UK for the last few years, but they’ve dipped considerably in 2024. In fact, the numbers dropped from 5% to 4.75% on November 7, 2024. Reduced interest rates make mortgages more affordable, consequently cutting the cost of homeownership and encouraging more people to invest in the housing market.
- Government incentives and programs
Several measures taken by the UK government have catalyzed the housing market boom. One is the introduction of the Affordable House Programme (AHP), which gives housing associations and local authorities grant funding to facilitate the development and delivery of affordable housing.
- Lifestyle changes
The recent pandemic led to lifelong lifestyle changes that have significantly impacted the housing market. For starters, it made remote and hybrid more people, and now more Brits prefer to live in homes with enough space for dedicated work areas. That is why we are witnessing a higher demand for properties in rural and suburban areas, where larger homes are reasonably priced.
- Supply constraints
There’s surging demand in the UK, but we can’t say the same for supply. We analyzed the charts published by the House of Commons Library and noticed that there hasn’t been a significant increase in housebuilding in the UK in recent years. Since demand is high and supply is struggling to keep up, housing prices have risen significantly in recent years.
- Inflation
According to a BoE report, inflation will likely reach 2.75% in the second half of 2025. That is a significant uptick considering that, as of September 2024, the number was a mere 1.75%. The predicted increase in inflation has encouraged many investors to protect their portfolios by hedging with real estate. This is a splendid idea since, unlike other assets, the value of real estate rises in tandem with inflation.
Increased Foreign Investment
Hundreds of thousands of properties scattered allover the UK are owned by foreigners. Various aspects have encouraged this state of affairs, including the quality of education, unmatched property rights, and economic stability in this region. As more overseas investors buy properties in the UK, the housing market experiences a boom.
Current Market Trends
Multiple market trends are shaping the overall landscape of the UK housing market. For starters, there’s a noticeable shift from city centers to suburban and rural areas. The NHF says the demand for social homes in rural areas is 10 times higher than in cities and downs. In other words, more Brits are now buying rural homes since they offer the most prized features, i.e., more space for home offices, gardens, etc.
In addition, the demand for rental houses is increasing at a steady rate. As of 2024, millions of young professionals, students, and international workers are searching for places to rent. This trend has encouraged a surge in the number of investors interested in buy-to-let properties.
We can’t forget to mention green and sustainable properties. In the current age, more Brits are opting for properties with environmentally friendly features like solar panels, Energy Star appliances, and double-glazed windows.
Advantages of Investing Now
If you’ve been considering investing in the UK housing market, several compelling reasons should help you make up your mind. They include:
- Strong capital appreciation: Property prices in the UK have been on an upward trajectory for a while now. Since this trend will likely hold for years to come, investing today is a splendid idea.
- Attractive rental yields: Rental demand is surging in many regions in the UK, from Manchester, Nottingham, and Glasgow to Liverpool, Edinburg, Birmingham, etc. If you invest in buy-and-let properties in such areas, rest assured you’ll have a steady source of income.
- Low mortgage rates: Low mortgage rates have prevailed in the UK since 2021. The comparatively low number we are witnessing today translate into lower cost of homeownership, making investing in the UK housing market an advisable move.
- Favorable government policies: Presently, first-time home buyers can enjoy discounts of up to 30% while buying new-build homes. Such policies make the current UK housing market ideal for green investors.
Risks and Challenges
Investing in the current UK housing market isn’t all rainbows and kittens; it also comes with a few noteworthy risks and challenges, including:
- High property prices: The current boom in the housing sector has led to a spike in property prices. This can lead to affordability issues, especially since wages aren’t growing that fast.
- Potential for higher mortgage rates: If the government decides to address inflation by raising interest rates in the future, the cost of homeownership will increase significantly.
- Onerous regulations in the buy-to-let sector: Investors in the UK’s buy-to-let sectors have been exposed to stringent regulatory standards in recent years. And the situation will only get worse in the future. For instance, according to recent reports, officials might ban no-fault evictions by next summer.
Conclusion
Investing in the current housing market might be a good idea because there’s strong capital appreciation, low rates, and spiking rental demand. However, the current boom has caused an increase in property prices, so prepare to pay more than before. Keep these and other crucial factors in mind when making the final decision on whether entering the UK market now is a good idea.