Article Summary

Introduction

In the dynamic landscape of the UK housing market, where challenges such as rising rates and increased living costs abound, there is a silver lining that shines through—the resilience of the rental sector. Despite market uncertainties, stringent lending rules, and global financial crises, the rental market in the UK has demonstrated remarkable stability, with signs of distress remaining largely elusive.

Forecasts for the base rates suggest a plateau until mid-2024, followed by a potential decline later in the year. This projection lays the foundation for improved fixed-rate deals as the spectre of further rate hikes diminishes. While households may face higher rates for a prolonged period, the overall market resilience remains intact.

Projections indicate a bottoming-out of prices in 2024, with the first half of the year witnessing declines outweighing any second-half increases. The result is a likelihood of single-digit annual falls by the close of 2024. However, an optimistic shift is anticipated in the 2025 forecast as fixed rates begin to fall, providing a more certain outlook for the market.

Contrary to some bearish forecasts anticipating higher house price falls, a more nuanced analysis suggests that the real impact may be felt in real house prices rather than significant nominal falls. Inflation plays a crucial role in this scenario, with high inflation contributing to a scenario where even static house prices in nominal terms effectively translate to a decline.

Nominal house price falls of 3% are forecasted nationally in 2024, following a -6% dip in 2023. In nominal terms, prices at the end of 2024 are expected to be 12.7% down from their mid-year 2022 peak. However, when adjusted for inflation, the fall surpasses -20%, highlighting the influence of inflation on the market dynamics.

While most homeowners and investors may not often consider the real (inflation-adjusted) value of their houses, in times of higher inflation and stretched affordability, real house price falls can address concerns without eroding nominal prices and equity significantly.

A Positive Rental Horizon: Insights from JLL’s Residential Forecast 2024-2028

Shifting our focus to the rental market, a notable imbalance between rental stock and tenant demand characterized 2023, propelling rental growth to double-digit highs. These insights are gleaned from JLL’s latest residential forecast for 2024-2028, providing a comprehensive outlook for the years ahead.

Despite witnessing a more balanced market as stock levels rise, volumes still lag behind long-run averages. JLL’s forecast underlines the expectation that the scarcity of new rental stock, stemming from fewer new home completions and a challenging interest rate environment, will lead to rental growth outpacing wage growth. These insights offer investors a strategic understanding of the evolving market dynamics.

Below are some statistics that show a positive rental forecast for the UK:

These forecasts from JLL suggest a 5% increase in rents across the UK in 2024. With a foundation built on robust data and analytical rigor, JLL’s insights provide a roadmap for navigating the rental landscape. The subsequent years, according to JLL, will benefit from more attractive mortgage rates, fostering a balance between tenant demand and rental stock.

London, in particular, is expected to experience higher rental growth due to increased competition for stock and challenges of affordability in the sales market. This indicates a positive trajectory for the rental market, where growth is not only anticipated but also potentially exceeding expectations.

Conclusion

In conclusion, the UK rental market is poised for a period of growth and resilience, with rental forecasts showcasing positive trends. The insights from JLL’s residential forecast for 2024-2028 add depth and credibility to these projections, offering stakeholders a nuanced understanding of the market landscape. The anticipated balance between tenant demand and rental stock, coupled with the impact of favourable mortgage rates, paints an optimistic picture for investors and tenants alike. As the rental market continues to evolve, embracing this positivity and leveraging the insights from JLL will be key for those navigating the intricate landscape of real estate in the UK.

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