Long-term growth forecasts remain positive for the UK’s housing market, and investing in high-calibre buy-to-lets is still a top strategy.

The build-to-rent sector, which is known for providing higher quality accommodation in the private rented sector, is on track to hit a total value of £102bn by 2028, according to a recent report from Knight Frank.

This colossal rise from being a relatively new, niche asset class towards becoming an increasingly dominant option for the country’s privately renting tenants is a true indicator of how things are changing in the UK’s rental space, reflecting the fact that renters are more keen than ever to opt for top quality properties.

It is also something that prospective property investors can use as a tool when deciding on future purchase options. The fact that growing numbers of tenants are willing to pay more for higher calibre homes with additional amenities is pointing investors in a new direction.

Reiterating this message, Kris Mclean, the managing director of the Guild of Property Professionals, believes that this rising appetite for quality rental properties across the UK is going to keep the buy-to-let sector as a whole strong over the coming years.

‍

Rental price outlook is positive

Mclean points towards a shortage of property stock, along with additional demand from would-be first-time buyers who may remain in the rental sector for longer now, as the key factors spurring on the strong rental prices and yields for property investors.

“Average rents in the UK rose again in October to £1,171,” he said. “Excluding London, average monthly rents now stand at £976. Annual rental growth in Scotland has doubled in the past year, with emergency legislation passed by the Scottish government to freeze rents and evictions for both the private and social rented sectors until at least 21st March 2023.

“There is no doubt that 2023 will inevitably prove a very different housing market to 2022, but there will still be buyers who need to buy, and sellers who need to sell. Over the longer term, forecasts for growth remain positive,” he added.

‍

Focus on cities

Property investors keen to keep tabs on the potential capital appreciation of their properties can also rest assured that, on a long-term basis, overall house price growth will return by 2025 after a “recalibration” over the next couple of years.

“Single-digit price correction is predicted for 2023/2024 before price growth is anticipated to return in 2025,” says Mclean. “Buyers will continue to benefit from the 0% rate of stamp duty up to £250,000 until March 2025.

“With almost one in three movers ‘needs-based’, such buyers will present sales opportunities. However, realistic pricing for market conditions will be paramount to achieving a sale as the market recalibrates.”

Yet, despite the headline figures, forecasts putting cities under the microscope - particularly regional cities that have seen strong performance in recent years, such as Manchester and Birmingham - show a very different outlook.

For example, in a recent report from JLL, neither of these cities is forecast to see house prices fall in any one of the next five years. While there will be an inevitable slowdown compared with the soaring prices we have become used to, property values will continue on an upwards trajectory.

In Manchester, the cumulative house price increase expected over the next five years, between 2023 and 2027, is 19.3% in total. Meanwhile, Birmingham is only marginally behind with predictions of a 19.3% overall house price increase by 2027, which fully negates the current standard prediction across the housing market as a whole.

‍

A good position

On the whole, it seems that the UK housing market is in a strong position to withstand the predicted recession. Unemployment levels are currently low, while people’s equity in their homes is high historically, with only around 4.2% of homeowners having less than 10% equity in their properties.

While inflation continues to climb, the expectation now is that it will peak at 9.1% by the end of the year, before falling to 7.4% in 2023 and 0.6% in 2024.

On house prices, Mclean adds: “At 7.2% in the year to October, annual price growth remains considerably stronger than the 3.3% average between 2010 and 2019. Since June 2020, average property prices have risen by close to £50,000, the equivalent of 24%, with lockdown and lifestyle changes spurring the market.”