A Growing Population Leading To a Growing Demand

One of the most significant factors that will widen the gap between supply and demand in the UK housing market is the country’s rapidly growing population. The UK continues to attract global talent, not only due to its thriving business sector but also its world-class educational institutions. This makes it an increasingly popular destination for those overseas.

By 2035, the UK population is projected to reach 74 million, representing a 9.9% increase over just 15 years. This population growth will naturally lead to a rise in demand for rental properties, creating compelling opportunities for property investors. 

While younger professionals still represent the largest group of tenants, there’s a notable rise in the number of people aged 50 and over entering the rental market. This demographic change, driven by factors such as downsizing properties and lifestyle choices, is creating increased demand for a wider variety of property types.

For investors, this demographic shift offers an opportunity to diversify portfolios and meet the changing needs of tenants. The evolving rental market highlights the UK’s continued attractiveness as a stable investment destination.

Increasing Inward Investment: A Booming Opportunity for Investors

The UK has become an increasingly attractive destination for Foreign Direct Investment (FDI), with recent data from EY revealing that the country ranks second in Europe for the number of foreign investment projects. 

This surge in FDI highlights the confidence global investors have in the UK’s economic stability and long-term growth potential, making it an appealing environment for property investors.

The West Midlands has emerged as a hotspot for foreign investment, with 1,555 new FDI projects there in 2023/2024 alone. This influx of investment is a clear indicator of the region’s growing economic importance and its appeal to global businesses seeking to establish or expand their operations in the UK.

Businesses Attracted to the UK

Traditionally, London has been the go-to choice for international companies. However, the rise of cities in the North, driven by factors such as lower operational costs, strong regional growth, and government-backed initiatives, is leading to a shift in business activity. As a result, demand for office space outside of the capital is soaring, presenting a significant opportunity for property investors in these regions.

MediaCityUK in Manchester is a prime example. Once a derelict dock area, MediaCityUK has been transformed into a thriving digital media hub. Since its opening in 2012, the 53-acre site has become home to major players like the BBC and ITV, as well as 250 creative businesses and the University of Salford. 

For investors, this increasing inward investment signals a wealth of opportunities across the UK, where a booming business landscape is driving demand for both commercial and residential property in the UK. 

With a combination of rising demand, increasing foreign investment, and steady economic growth, the UK property market is set for significant expansion in the coming years. Property prices are expected to grow steadily, with projections showing consistent annual increases. For investors, this presents a unique opportunity to capitalise on a market sure to provide solid long-term returns. Here’s a look at the predicted growth ahead for the UK property market.

Long-Term Capital Growth for Property in the UK 

The UK property market is expected to see consistent growth over the next five years, with property prices forecasted to rise steadily year-on-year. For 2024, experts predict a modest increase of 3%. There is expected to be further gradual gains of 2.5% by the end of 2025, 3% in 2026, 3.5% in 2027, 4% in 2028, and 5% in 2029. This long-term trajectory reflects a positive outlook for property investors, signalling an environment subject to capital appreciation.

These growth rates may appear moderate, but they highlight the UK’s resilience as a stable and reliable market for property investment. The forecasted price increases suggest that investors can expect a steady rise in property values, offering the potential for solid returns over the coming years. While the pace of growth may not be explosive, the stability and predictability of the UK market make it a strong contender for investors seeking long-term, sustainable returns.

Strong Returns Ahead for UK Investors

A recent study by Paragon Bank revealed a positive outlook for landlords, with 87% of those surveyed reporting profits in Q3 2024. The profits made by landlords in Q3 were 7% higher than the same time last year, highlighting a strong upward trend in buy-to-let returns.

This growth is expected to continue, driven by an imbalance between the low supply of properties in the UK’s private rented sector and the rising demand for rental homes. As a result, both property prices and rental rates are expected to increase, creating a favourable environment for investors looking to benefit from long-term capital appreciation and rental income growth.

Looking forward, experts predict that rental prices will increase by 3-5% annually over the next year, providing buy-to-let investors with rising rental yields and a steady stream of income. By the end of 2024, rents are expected to have risen by around 8% year-on-year. While rental growth is expected to slow down from 2025, the forecasted rates remain above historical averages. 

Knight Frank anticipates 4% growth in 2025, followed by steady increases of 3.5% in both 2026 and 2027, 3% in 2028, and 2.5% in 2029. Over these five years, cumulative rental growth is expected to reach an impressive 17.6%.

For investors, this means not only a healthy rental income but also the potential for strong long-term capital gains, making buy-to-let property in the UK a compelling investment opportunity.

Navigating Recent Rate Changes

Recent shifts in interest rates and other key economic factors have made waves in the UK property market, raising important questions for investors. These changes, particularly to mortgage rates and the Bank of England’s base rate, could affect investment strategies and market conditions moving forward. Let’s explore the recent changes that may have an impact on the property market.

The Impact of Base Rates on Mortgage Costs 

The Bank of England’s recent decision to lower the base rate to 4.75% came after the UK inflation dropped below the Bank’s 2% target for the first time in over three years. Signalling a potential shift towards more stable economic conditions. For property investors, this is an important signal that borrowing costs could gradually ease, though the landscape remains dynamic.

In the months following the base rate cut, mortgage rates saw some minor relief. Between September and October, the average two-year fixed mortgage rate dropped from 5.56% to 5.4%, while the average five-year fixed rate fell from 5.2% to 5.07%, according to Moneyfacts. 

However, in October, some of the larger lenders raised rates again, with the average two-year fixed rate climbing back to 5.5%. This fluctuation underscores the importance for property investors to remain on top of the market. Mortgage rates can change quickly in response to both base rate adjustments and broader market conditions.

Looking ahead, the outlook for mortgage rates appears to be relatively stable in the near term. Zoopla predicts that mortgage rates will likely remain close to current levels throughout 2025, excluding any unexpected economic shifts. 

Stamp Duty Changes: What Investors Need to Know Ahead of 2025

Stamp duty is set to undergo significant changes in the UK, which could have important implications for property investors and potential buyers. Currently, the stamp duty rate offers a nil rate band of £250,000 on property purchases, meaning that buyers pay no stamp duty on properties up to this threshold. However, this temporary measure, introduced by the previous government to stimulate the housing market, is set to end in April 2025.

When the change takes effect, the nil rate band will be reduced to £125,000, and the tax rates for properties above this amount will also be adjusted. For property investors, this shift represents both a challenge and an opportunity. For those looking to enter the market or expand their portfolios, acting before April 2025 may help avoid the higher stamp duty costs and lock in more favourable terms. 

Ultimately, the upcoming stamp duty changes are a key factor for investors to monitor. The rates will likely influence buyer behaviour, market conditions, and property prices. Staying informed and planning purchases strategically before the rate changes could help investors save money and position themselves for future growth in the market.

The UK property market is showing positive signs of growth. Making it an attractive option for investors looking to build or expand their portfolios. With steady increases in property prices, growing rental demand, and a supportive economic environment, it’s advisable to start exploring your options now to lock in favourable prices before the market continues its upward trajectory. 

Related Articles

  • Purchasing a Buy to Let: Top 10 Things to Consider

    Purchasing a Buy to Let: Top 10 Things to Consider

    Purchasing a Buy to Let: Top 10 Things to Consider Are you considering purchasing a buy-to-let property to improve your investment portfolio, but not...

    Learn more
  • Landlords Profits are Rising

    Landlords Profits are Rising

    Despite higher taxes and rates, landlords’ profits are still growing. Strong demand for rental properties continues to fuel their success in a...

    Learn more
  • Why Invest in Leicester?

    Why Invest in Leicester?

    Leicester is an upcoming hotspot for property investments, with a rising rental market and many factors scaling up demand. Discover why investors...

    Learn more
  • October Property Market 2024

    October Property Market 2024

    From steadying house prices to a surge in sales, the October property market has revealed promising rises across the board, marking a resilient and...

    Learn more

Explore our Investment Guides

Take a look
Explore our Investment Guides
Chat to us

As Seen In

Trustpilot

Join CityClub Today to Receive:

  • Priority access to exclusive off market investments
  • Below market value pricing
  • Out of hours investor support chat
  • Allocated solicitor for hands free conveyancing