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    Why has owner-occupier demand dropped?

    The reasons for owner-occupier demand dropping are plentiful. Firstly, interest rates have risen, with the Bank of England increasing the base rate to 4% in February 2023. Therefore, many buyers are postponing plans to move. Additionally, first-time buyer demand has dropped as the help-to-buy scheme has ended. First-time buyers make up a large portion of the buying market. While government support for first-time buyers continues, they are still priced out of the market.

    In the UK, house prices have continued to grow, leading to higher deposit requirements. Many potential first-time buyers can no longer afford 10-20% deposits in the current market. To combat this, high loan-to-value mortgage options are available, which require a 5% deposit. However, high-interest rates result in larger repayments that are incredibly difficult to pay.

    Why this caused rental demand to rise?

    While owner-occupier demand has dropped, rental demand has continued to thrive. This is because of the supply and demand imbalance across the UK. Demand for property in the UK has surpassed pre-pandemic levels, in part due to the rise of homeworkers. However, the increasing costs are turning more residents towards the rental market.

    The locations available to renters are also far more attractive, as they are often available in more central areas. Many new-build properties also save tenants significant amounts on their utility bills. The current cost of living is high; therefore, tenants are far more willing to pay higher rents for a property that is more energy efficient.

    Are house prices going to rise?

    House prices grew by 0.9% in January 2023, signalling strength in the market. Forecasters expected property prices to dip as a result of a drop in demand during 2023. However, early signs indicate the market has returned to a regular level of activity. Despite lower levels of demand, we can still expect to see sustained growth across the UK property market.

    Additionally, regeneration in key UK cities is underway. Based on past regeneration projects, this will cause property prices to climb. This is a result of increased amenities, jobs, and facilities available to residents in the areas of regeneration. Improvements to local infrastructure benefit property owners because the value of properties in the surrounding areas increases. Therefore, landlords can earn larger levels of capital appreciation.

    Are rental prices going to continue to grow?

    It looks increasingly likely that rental prices will continue to increase, as demand for owner-occupiers persists. This will lead to more residents looking for rental properties in the UK, as the buying market activity reduces. If owner-occupier demand drops, rental demand will usually grow, as it is the only other widely available option for residents.

    Additionally, Generation Rent is in full effect. This is the demographic of people who are priced out of purchasing a home. This is due to the price of a deposit, high student loans and cost of living fees. While for some, being on the property ladder is not an immediate priority as some properties do not have the amenities available to fit their lifestyle.

    CityRise Verdict

    Rental prices are going to continue to increase, regardless of buyer demands in the UK. Typically, if buyer demand drops, more people look for rental accommodations. However, if buyer demand rises the rental market will still grow, due to the supply-demand imbalance. This is why a buy-to-let property is a strong form of investment, as the property market is incredibly resilient.

    For investors, it is an encouraging sign that the buyer’s market activity has returned to normal levels. This is because there is less competition in the market and developers start to look at buy-to-let opportunities rather than residential properties.

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